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25–373 PDF 2005

MANAGEMENT AND OVERSIGHT

OF THE NATIONAL FLOOD

INSURANCE PROGRAM

HEARING

BEFORE THE

SUBCOMMITTEE ON 

HOUSING AND COMMUNITY OPPORTUNITY

OF THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

OCTOBER 20, 2005

Printed for the use of the Committee on Financial Services

Serial No. 109–60

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa 

RICHARD H. BAKER, Louisiana 

DEBORAH PRYCE, Ohio 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

ROBERT W. NEY, Ohio 

SUE W. KELLY, New York, Vice Chair 

RON PAUL, Texas 

PAUL E. GILLMOR, Ohio 

JIM RYUN, Kansas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

CHRISTOPHER SHAYS, Connecticut 

VITO FOSSELLA, New York 

GARY G. MILLER, California 

PATRICK J. TIBERI, Ohio 

MARK R. KENNEDY, Minnesota 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

KATHERINE HARRIS, Florida 

RICK RENZI, Arizona 

JIM GERLACH, Pennsylvania 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

MICHAEL G. FITZPATRICK, Pennsylvania 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

BARNEY FRANK, Massachusetts 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

DARLENE HOOLEY, Oregon 

JULIA CARSON, Indiana 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

BARBARA LEE, California 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

HAROLD E. FORD, JR., Tennessee 

RUBE ́ N HINOJOSA, Texas 

JOSEPH CROWLEY, New York 

WM. LACY CLAY, Missouri 

STEVE ISRAEL, New York 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

JIM MATHESON, Utah 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

ARTUR DAVIS, Alabama 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

DEBBIE WASSERMAN SCHULTZ, Florida 

GWEN MOORE, Wisconsin, 

BERNARD SANDERS, Vermont

Robert U. Foster, III, Staff Director 

(III)

SUBCOMMITTEE ON HOUSING AND COMMUNITY OPPORTUNITY

ROBERT W. NEY, Ohio, Chairman

GARY G. MILLER, California, Vice Chairman 

RICHARD H. BAKER, Louisiana 

PETER T. KING, New York 

WALTER B. JONES, JR., North Carolina 

CHRISTOPHER SHAYS, Connecticut 

PATRICK J. TIBERI, Ohio 

GINNY BROWN-WAITE, Florida 

KATHERINE HARRIS, Florida 

RICK RENZI, Arizona 

STEVAN, PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

MICHAEL G. FITZPATRICK, Pennsylvania 

GEOFF DAVIS, Kentucky 

MICHAEL G. OXLEY, Ohio 

MAXINE WATERS, California 

NYDIA M. VELA ́ ZQUEZ, New York 

JULIA CARSON, Indiana 

BARBARA LEE, California 

MICHAEL E. CAPUANO, Massachusetts 

BERNARD SANDERS, Vermont 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

ARTUR DAVIS, Alabama 

EMANUEL CLEAVER, Missouri 

AL GREEN, Texas 

BARNEY FRANK, Massachusetts 

(V)

C O N T E N T S 

Page 

Hearing held on: 

October 20, 2005 ............................................................................................... 1

Appendix: 

October 20, 2005 ............................................................................................... 47

WITNESSES 

THURSDAY, OCTOBER 20, 2005

Baker, Hon. Richard, a Representative in Congress from the State of Louisiana ..................................................................................................................... 7

Jenkins, William O., Jr., Director of Homeland Security and Justice, U.S. 

Government Accounting Office ........................................................................... 30

Maurstad, David I., Acting Director and Federal Insurance Administrator, 

Mitigation Division, Federal Emergency Management Agency, Emergency 

Preparedness and Response Directorate, Department of Homeland Security 27

Taylor, Hon. Gene, a Representative in Congress from the State of Mississippi .................................................................................................................. 10

APPENDIX 

Prepared statements: 

Kelly, Hon. Sue W. ........................................................................................... 48

Davis, Hon. Jo Ann .......................................................................................... 52

Fitzpatrick, Hon. Michael G. ........................................................................... 54

Jenkins, William O., Jr. (with attachments) .................................................. 55

Kanstoroom, Steven J. ..................................................................................... 145

Maurstad, David I. ........................................................................................... 132

Taylor, Hon. Gene ............................................................................................. 140

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Independent Insurance Agents & Brokers of America, Inc., prepared statement ...................................................................................................................... 149

National Association of Professional Insurance Agents, prepared statement .... 152

National Flood Insurance Program: Estimate of Ultimate Paid Losses from 

Hurricane Rita ..................................................................................................... 166

(1)

MANAGEMENT AND OVERSIGHT 

OF THE NATIONAL FLOOD 

INSURANCE PROGRAM 

Thursday, October 20, 2005

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON HOUSING AND COMMUNITY

OPPORTUNITY, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 10:06 a.m., in 

Room 2188, Rayburn House Office Building, Hon. Robert Ney 

[chairman of the subcommittee] presiding. 

Present: Representatives Ney, Harris, Pearce, Neugebauer, 

Fitzpatrick, Waters, Scott, and Cleaver. 

Ex officio present: Representatives Oxley and Frank. 

Also present: Davis of Virginia, Kelly, Melancon, and 

Blumenauer. 

Chairman NEY. Today the Subcommittee on Housing and Community Opportunity meets to continue its review and oversight of 

the National Flood Insurance Program. Specifically, today’s hearing 

will focus on GAO’s report on issues related to the NFIP, its management and oversight by the Federal Emergency Management 

Agency, FEMA, and FEMA’s implementation or reforms to the 

NFIP that were mandated by the Bunning-Bereuter-Blumenauer 

Flood Insurance Reform Act of 2004. 

Last year this committee spent considerable time and effort on 

legislation to reauthorize and reform the National Flood Insurance 

Program. The legislation includes provisions to strengthen the 

operational and financial aspect of the NFIP by providing States 

and local communities with an additional $40 million a year for 

flood mitigation efforts to try to help with repeatedly flood-prone 

properties. It allows for increases in flood insurance premiums on 

properties that refuse Government mitigation offers. 

While the Flood Insurance Reform Act addresses a number of 

procedural problems with the NFIP, additional concerns were 

raised during the deliberations on the legislation. 

Incidental evidence showed that policyholders often did not have 

a clear understanding of their policies. Insurance claims often did 

not understand what they were selling or how to process claims 

correctly. Many policyholders did not know of or understand the 

appeals process, and many questioned the adequacy of payments in 

the adjustment system. 

2

The Flood Insurance Reform Act mandated the GAO conduct a 

study on these issues. The study released this week concluded that 

improvements are needed to enhance oversight and management of 

the NFIP. 

As evidenced by Hurricanes Katrina and Rita, floods have been 

and continue to be one of the most destructive and costly natural 

hazards to our Nation. During this past year there have been three 

major floods in my district in the State of Ohio. All three of these 

incidents qualified for Federal relief granted by President’s executive order, and recent flooding in January of this year resulted in 

historic levels in several local dams, and in Tuskares county three 

communities in the district were forced to evacuate, which displaced 7,000 people in a county out of 70,000. 

I was obviously able to witness firsthand the devastation when 

I toured the damaged properties in Tuskares and Guernsey counties. Of course, we have colleagues who have witnessed unbelievable devastation in their areas of the United States. 

Today marks the fourth hearing the Housing subcommittee has 

held since enacting the Flood Insurance Reform Act. Last week I 

conducted two productive emergency management summits in Belmont and Athens counties back home. Discussions focused on the 

devastation of the Gulf Coast and how these recent disasters have 

amplified many of the shortcomings in the National Flood Insurance Program. It is critical we take the next step forward and review the GAO report and find out why there are so many stumbling blocks to the success of the NFIP. 

The National Flood Insurance Program is a valuable tool in addressing the losses incurred throughout this country due to floods. 

It ensures that businesses and families have access to affordable 

flood insurance that would not be available on the open market. 

Last year’s Flood Insurance Reform Act achieved significant reforms to this important Federal program. I look forward to hearing 

from our witnesses today as we discuss how best to implement the 

legislation, as well as determine whether new reforms and initiatives are in order to complement the work we accomplished last 

year. 

I want to thank our witnesses this morning for taking the time 

to share their testimony, their important testimony, with this subcommittee, especially Chairman Richard Baker, Congressman Gene 

Taylor. Also, I want to thank David Maurstad of FEMA, who 

should be designated as an honorary member of the Housing subcommittee for his numerous appearances here before this subcommittee. I also believe Congressman Melancon may be—oh, I’m 

sorry—is here to our right. 

I also want to thank our ranking member, Maxine Waters, all 

her work on this, and also the ranking member of the committee, 

Barney Frank, and his staff. Mr. Reilly came to Ohio, has had different hearings on disaster issues, along with our staff, Tallman 

Johnson, Clinton Jones, and Cindy Chetti, who have worked on 

this issue. 

And I will recognize, without objection, the gentleman from Oregon, Mr. Blumenauer, and the gentleman from Louisiana, Mr. 

Melancon, will be permitted to participate in today’s hearing. And, 

3

I’m sorry, very important, the gentlewoman Jo Ann Davis from Virginia. The gentleman from Massachusetts? 

Mr. FRANK. Thank you, Mr. Chairman. I appreciate the diligence 

you have been showing in this effort to deal with the terrible 

events that befell the residents of the Gulf Coast. 

As people who follow this closely know, we actually anticipated 

the need for changes in the Flood Insurance Program. It was interesting afterwards to have people say, ‘‘Well, okay with flood insurance, but you’ve got to do these things,’’ many of which had been 

done as a result of the initiative of this committee. 

The gentleman from Louisiana, with his knowledge of it, had a 

major role in shaping this bill. There was a genuinely bipartisan 

effort in the last Congress. Our former colleague, Mr. Bereuter of 

Nebraska, and our current colleague, Mr. Blumenauer of Oregon, 

worked together to do this. And we will be talking, obviously, both 

about what can be done here, but also—and I noted our Senate colleagues raised some questions. 

Again, it was bipartisan. It was both the Senator from Kentucky, 

Mr. Bunning, and the Senator from Maryland, Mr. Sarbanes, who 

pressed for better implementation of some of the things we put into 

the bill last year, including mitigation. 

We are sometimes accused of just sending out money and the legislative work we did last year clearly refutes that. And in a bipartisan way, we and the initiative to come out of this committee—

and the chairman of the full committee was one of those most responsible for it happening—we restructured that program and put 

into it many of the safeguards, both environmental and fiscal, that 

people wanted. 

I was very pleased when that bill was being pushed that it had 

strong support from the taxpayer groups concerned about a better 

use of Government money and the environmental groups. So there 

are some aspects of that bill that are not being implemented. Obviously, we understand the focus right now on the aftermath of 

Katrina, but that’s only for the last month and a half. And there 

is I think an obligation on the part of those responsible to explain 

to us why more hasn’t been done to implement last year’s bill and 

to give us more assurance. 

Beyond that, I want to express my strong support for the efforts 

that our colleague from Mississippi, Mr. Taylor, has taken. And 

New Orleans, obviously, is a picturesque and famous part of American culture celebrated in movies, and books, and song, and has 

been the focus of a lot of attention, understandably, but it is not 

the only part of the region that was hit. 

Mr. Taylor represents a part of the region in the Gulf of Mississippi that was hit very hard. He has been absolutely tireless 

from the very first moments in calling attention to that, and working responsibly to try and get some aid for those people he represents, and we are talking particularly about people who don’t 

have vast resources. 

And again, as I said, people sort of saw the TV pictures of the 

victims of this disaster in New Orleans. We have other victims who 

deserve every bit as much attention, and Mr. Taylor has been reminding all of us of that, and I was particularly pleased to work 

4

with him on his legislation that would provide some help for people 

who did not have flood insurance. 

And I think to let people’s—to let the situation rest where people 

of moderate income, low income obviously, but even people of moderate income whose houses have been wiped out, to get no help 

whatsoever when their houses are wiped out through events over 

which they had no control is a great mistake. 

And I believe that we have the capacity to respond. I think we 

can respond in ways that do not encourage future irresponsible behavior. There were people who were badly advised. There were 

flaws in the Federal program. I do not think the moderate income 

homeowners of the Gulf Coast of Mississippi ought to bear that 

burden, and we also want to understand that by helping them, we 

also avert serious damage to our financial system. 

One of the things that I most fear, and I know many other members of the committee share this, is a continued move in this country towards larger and larger banks and a threat to the smaller 

community banks. We need a mix. We don’t want to see the smaller banks and the credit unions forced out of business. 

If, in fact, the most responsible banker in the world, the most responsible credit union official in the world whose locus was in Mr. 

Taylor’s district or in parts of Louisiana had made home loans that 

were perfectly reasonable, he or she would now find the situation 

where the bank’s future is threatened, not because of any error 

anybody made, but because of an entirely unanticipated event. 

And if we allow the individuals to go uncompensated, not only 

do we have serious problems for them as individuals to which I 

think we should respond, but we get systemic problems. We will 

see bank failures. We will see credit unions go under that cost the 

Government some money on the insurance front. But even more 

negatively, it undermines our ability to keep this network of community banks. 

So, the legislation Mr. Taylor has put forward I think is a very 

responsible way to provide desperately needed help for individuals 

who have worked hard all their lives, did nothing wrong, and found 

themselves in this distress, but also, as part of our responsibility 

to the Banking Committee, averts a further push towards the kind 

of excessive consolidation of the industry, which is not a good 

thing. 

Thank you, Mr. Chairman. 

Chairman NEY. Thank you. Without objection, I have several 

statements for the record: a statement of the National Association 

of Professional Insurance Agents, a statement of the Independent 

Insurance Agents, a statement of Representative Jo Ann Davis, a 

statement of Steve J. Kanstoroom. Without objection, it will be part 

of the record. 

[The following information can be found on pages 52, 145, 149, 

152 in the appendix.] 

Any opening—Mr. Pearce, opening statement? Mr. Scott, opening 

statement? 

Mr. SCOTT. Very brief, Mr. Chairman. First, let me thank you for 

the excellent leadership you are providing on this issue, and I certainly look forward to hearing from Mr. Baker and Mr. Taylor, of 

Louisiana and Mississippi areas that were hit so impactfully. We 

5

have no better twosome in this Congress that can deal with it and 

help us understand the magnitude of the tragedy because they, indeed, were in the eye of the storm, as were their constituents. 

It seems to me we have two issues to consider when reviewing 

flood disaster responses. The first is to determine if flood maps are 

updated and accurate and if enough homes are covered by the insurance. 

The second issue is whether or not Federal agencies are prepared 

to work with State and local authorities to plan for and execute a 

disaster plan. FEMA has estimated that national flood insurance 

claims for Hurricanes Katrina and Rita could exceed $22 billion. 

This amount would surpass the total payout since the program 

began 37 years ago. 

Now we have Wilma that is now headed to Florida according to 

the latest estimates of direction. It could change at any time, however, but Florida seems to be directly in the path, and it is estimated to be one of the most powerful storms ever on record. 

It is imperative that flood mapping be quickly updated in all 

coastal communities while insuring that those homes adjacent to 

flood plains have adequate protection. 

Most of the ninth ward residents in New Orleans were not required to purchase flood insurance since Federal flood maps assume that these neighborhoods would be protected by the levee system. There are concerns that many of these residents will now lose 

their homes. 

I look forward to the hearing. And, hopefully, we can address 

some very critical questions. For example, should FEMA be independent from the Department of Homeland Security? How would 

you grade FEMA’s ability to work with State and local officials in 

flood map development? We need to elaborate on the current efforts 

of the Department of Homeland Security, to work with local communities to plan for disasters and terrorist preparedness. 

We need to determine are we finding that other communities are 

not following through on their preparedness. These are very critical 

questions for a very critical time in our Nation, and I look forward 

to this hearing and hearing from this distinguished committee. 

Thank you, Mr. Chairman. 

Chairman NEY. Well, I thank the gentleman. The gentlelady, our 

ranking member from California? 

Ms. WATERS. Thank you very much, Mr. Chairman. I would like 

to submit my statement for the record and just briefly say that it 

is not enough to say how frustrated I am with the lack of support 

and protection for the victims of these hurricanes. 

Mr. Chairman, you have held hearings where we have attempted 

to get at vital information about the National Flood Insurance Program. And I think that on more than one occasion we have been 

misled. 

And it appears that just as FEMA was in chaos following the 

hurricane, not equipped or able or competent to respond in a timely 

manner, now we are learning that the National Flood Insurance 

Program appears to be not what some of us thought it was. And 

many of the allegations that have been made about adjusters, et 

cetera, appear to be true. 

6

And so, I am going to let us get on with this hearing today and 

have some questions to answer later. And I will submit my statement for the record. 

Chairman NEY. I want to thank the gentlelady also on her work 

on this issue. 

Mr. Cleaver has no opening statements. Mrs. Davis? The 

gentlelady is not—Mr. Neugebauer? 

Mr. NEUGEBAUER. Well, just briefly, Mr. Chairman, I think this 

is an important hearing. And one of the things I think that we 

need to continue to think about is ways that we make this flood 

insurance program an insurance program that works. 

But I think what we do also need to understand is what the limitations to a flood insurance program are. And one of the things 

that I believe that we are going to have to do is go to a risk-based 

system where we are in areas where there is a higher risk for the 

kind of events that we have witnessed in the past few months, that 

there may have to be a higher premium for that. 

Because certainly what we don’t want—and we have to have a 

system where there is participation and not the anticipation that 

every time one of these events happens, that the Federal Government is going to have to step up and be responsible for the losses 

that occur. And I think that the perfect system is one that, hopefully, maybe incorporates more in providing a partnership with the 

Federal Government and the private sector to determine what 

these risks are, and how to adequately build a premium base that 

will support those programs. 

But obviously, there is much more risk in a river rising in certain areas than there is a hurricane wall that none of us can foresee the surge that might happen during that time. So I look forward to having some important dialogue about this program. 

Chairman NEY. The gentleman from Louisiana, do you have an 

opening statement? 

Mr. MELANCON. No. I think anything that I would express would 

be expressed by Mr. Taylor or Mr. Baker. Thank you, Mr. Chairman. 

Chairman NEY. Thank you. The gentleman from Pennsylvania, 

do you have an opening statement? Thank you. 

With that, we will move on. I just wanted to—did want to say 

a couple of things. The ranking member, I think, was one of the 

first non-Gulf Members of Congress on the scene in the New Orleans area and in other parts of the Gulf, extensively looking also at 

the shelter situation down there. 

And also, the first hearing we had was requested by the 

gentlelady, actually, from Virginia, Mrs. Davis, and we appreciate 

you starting us rolling. 

And I am going to move on right away. I want to say one other 

thing, too, that I don’t think the public knows. And I know it wearing another hat, chairman of the House Administration Committee. 

I just want to give credit to the Members sitting here, the three 

Members from the Gulf, and the other Members, both sides of the 

aisle, from the Gulf and their staffs. 

When this all happened, we extensively dealt with the Members. 

If the staff couldn’t get a phone call through, they tried 900 more 

times until it happened. They wanted to make sure they were there 

7

for the constituents, the Members and your staff. They did a remarkable job under a very terrible situation to make sure that they 

were there for your constituents, as you all were. So I credit you 

for that. 

With that, we will start with Mr. Baker, Chairman Baker. 

STATEMENT OF HON. RICHARD BAKER, A REPRESENTATIVE 

IN CONGRESS FROM THE STATE OF LOUISIANA 

Mr. BAKER. Thank you, Mr. Chairman. I want to express my appreciation to you and the Members for your continuing attention to 

these difficult subject matters. 

As to your responsibility in House Administration, I certainly 

want to acknowledge the extent to which you and your staff went 

in trying to facilitate just the simplest of tasks. Just communication was extraordinarily difficult. And your team went well beyond 

any expectation in trying to assist us in meeting our obligations. 

And for that, I am grateful. 

I think to speak to this issue this morning, I want to start with 

just a brief historical story to establish my credentials on this matter. My dad is now a retired Methodist preacher. Years ago, served 

a church in Baton Rouge for 10 years. And when I went to the 

church—I was 6 when we left—I was 16, so I was affectionately 

known in the church as Little Richard. That causes some confusion, 

I’m sure. 

[Laughter.] 

Mr. BAKER. However, when my dad would meet with individuals 

after our departure from the church, he ran into a lady, a senior 

lady, who said, ‘‘Well, Reverend, how is Little Richard these days?’’

And he gave the usual kinds of explanations about legislature 

and elected to Congress, and so forth. And when she heard, ‘‘He is 

now a Member of Congress,’’ she dropped her head and said, ‘‘Oh, 

he used to be such a nice young man.’’

I think the flood insurance program and I enjoy similar regard. 

And I am speaking here today in defense of the flood insurance 

program. I would like to establish that when any natural disaster 

affects any region of the country, the only natural disaster which 

has a structured program where we collect premium and pay out 

benefits is the flood insurance program. 

Whether earthquake, tornado, mudslide, fire, we simply write 

checks out of the United States Treasury. Questions have not been 

asked, ‘‘How do we have budget offsets for those expenditures?’’ We 

respond because people are in need. 

Since 1988, every dollar advanced to pay claims for the National 

Flood Insurance Program have been repaid with interest, with premiums paid by policyholders. 

Now that doesn’t mean that the system can’t be made better. 

Two years ago—Mr. Frank made reference to the reforms that were 

adopted relative to repetitive lost properties. I will admit, Louisiana was one of the contributors to a significant problem. There 

was one property I know of where there were 21 claims submitted 

and paid. There is no excuse for that. 

The reforms adopted 2 years ago went to great lengths to eliminate abusive and inappropriate practices, and there are still limitations in the program’s implementation. But I will say to you, Mr. 

8

Chairman and members, in principle, what the flood insurance program provides is a well structured program that operates as intended with room for improvement. There is no other natural disaster that can lay claim to any such structure. 

Therefore, I find the discussion of whether we should have a 

flood insurance program, that it’s abusive or wasteful, frankly, very 

inappropriate. Mr. Taylor, I know, has a remedy for needs he has 

identified. I have my own program that I am introducing today 

that addresses some needs. 

Certainly we ought to have a discussion about how we can improve on it. But the idea that this is taxpayer money flowing out 

the door without accountability is simply not accurate. 

Where do we go from here? One of the matters which I think 

needs to be addressed is the current limitation on the line of credit. 

As I indicated, if you have a rush of claims and there is no cash 

in the drawer, you can go borrow money, which is subsidized by the 

taxpayer—today, up to $2 billion. 

As has been mentioned by members earlier, the expected losses 

to be paid merely for Katrina are approaching—and they, in fact, 

exceed—$20 billion. There will be a necessity to increase that line 

of credit for borrowings to pay obligations as they come due. 

I think it appropriate when we are addressing the line of credit that we also address the issue of the $250,000 limit. For those not 

familiar with the aspects of the program, if you choose to buy all 

of the flood insurance one can attain through this program, the 

maximum you can get for your structure is $250,000, and $100,000 

for contents, for a total of $350,000. 

As people on the lakefront of New Orleans are painfully learning, who may live in a $1 million or $2 million or $3 million home, the 

flood insurance won’t buy the lot back after this disaster. And so, 

it ought to be made available on an actuarial basis where a person 

can acquire whatever flood insurance they think appropriate for 

the risk they face. 

Enforcement. Louisiana is only second to Florida in the number 

of policy holders who pay premium. We’re about 42, 43 percent, 

somewhere in that range. I do not understand why financial institutions do not mandatorily force place flood insurance coverage 

when they issue a loan to an individual. 

Let me, for sake of reference, bring to the committee’s attention 

the map dated March 1, 1984, for the principal area known as New 

Orleans. There is a notation on this map. By the way, all of this 

is—would be normally—in the flood zone. But it’s designated as 

Flood Zone B. There are a whole host of flood zone designations 

which relate to the rate you pay, your premium. All zone B areas 

are protected from the 100 year flood by levee, dike, or other structure, subject to failure or overtopping during larger floods. 

March 1, 1984, Mr. Chairman. Why is it that a financial institution extending hundreds of thousands of dollars of credit would not 

take the fiduciary responsibility to require flood insurance on those 

properties for which they are extending credit? It makes no sense. 

I think we should have a requirement that within a certain number of miles of a coastal zone—from New York, which experienced 

a hurricane in 1938, to Washington State—the entire coastal area 

of the United States should be mandatorily required to participate 

9

in paying premium to the flood insurance program. That is the only 

way we can address Members’ concerns about repayment of lines 

of credit extended to meet obligations of Rita, Katrina, and—God 

help us all—Wilma. 

We all know they are going to come. We all know that coastal 

areas are exposed. Why don’t we address it and simply say, ‘‘Everybody is in the deal.’’ That’s what keeps prices low. That’s what 

keeps taxpayers from being unnecessarily under financial duress. 

It’s logical, defensible. I’m from Louisiana. I live 8 feet above sea 

level. I can do this. The rest of the Congress should be able to do 

this. 

This past two weekends, we watched as New England unexpectedly suffered extraordinary flooding loss and loss of life. What is 

not generally described or known, outside the 100-year flood 

plain—everybody is familiar with the 100-year flood plain. If you’re 

in the 100-year flood plain, everybody says you ought to have insurance. Twenty-five percent of all the claims paid by the National 

Flood Insurance Program are for properties outside the 100-year 

flood plain. 

Now we can’t simply say, ‘‘Because you’re outside the 100-year 

flood plain, you have no obligation to protect your property.’’ We 

need to have better mapping and assessment. We need to have an 

identification of risk and people obligated to participate in the flood 

insurance program and assessed a premium in relation to their actuarial rate exposure. 

I will introduce today legislation to create a Louisiana Recovery 

Corporation. The corporation will be empowered to issue debt off 

budget, subject to approval by the Treasury, to get us out of the 

recurring necessity to come to this Congress and fight appropriations battles. 

We cannot tell you today the cost for our environmental remediation. We cannot estimate the cost to give people the opportunity 

to move on with life. That information will develop over years as 

we move forward with our redevelopment effort. 

There is no local authority. The State government doesn’t have 

the ability. Fitch, Moody’s S&P have all downgraded our ability to 

issue debt. We’re on a negative credit watch. It’s only a matter of 

time before our ability to sell debt obligations in the capital markets will be so impaired it will make no sense. We have to have 

the Federal Government’s ability to borrow. 

I understand there is an obligation to each of you and your constituents to be transparent and responsible for the money we spent 

and, to the best of our ability, repay what we are borrowing from 

the rest of the generosity of the Nation. 

To that end, we should empower this organization to go in and 

acquire large tracts of land, respecting private property rights. If 

you want to take a cash settlement and move on, fine. You’re going 

to take a loss. So is the bank. The banks are going to come in for 

a big hit on this. So are the insurers. 

If you want to stay with us, and live through the redevelopment, 

and have your tract of land back when it’s done, fine. We’re not 

going to pay you anything; you’re just going to be a partner in redevelopment. 

10

If you would like to have a cash payment and have an option of 

first right of refusal on the redevelopment of property, that’s fine 

too. We will give you that shot. And if you want to come back and 

buy at market rate that tract of land, that’s fine. 

If you don’t want to do any of it, if you want to just sit it out 

on your tract of land where you are today with no help from anybody, that’s your choice. You can do that too. Respecting private 

property rights. There is not going to be bulldozers running wild 

down the middle of New Orleans taking people’s property away 

from them. 

At the same time, in order for a redevelopment to occur, somebody has to be able to provide for levee restoration, environmental 

remediation, basic infrastructure so we can have large tracts of developable property made available to the market. 

Last week of this month, we will have the GSE reform bill on 

the floor. One of the important assets of that bill is an affordable 

housing fund. It will make available $500 million to about $1 billion annually of affordable housing money for Katrina/Rita victims. 

This redevelopment plan will not be about making rich people 

richer; it will be about rebuilding Orleans and the surrounding 

area in a way which is a modern community that affords opportunity for everybody, from subsidized housing, multi-family, to giving those who have good fortune an opportunity to reclaim some of 

their loss. 

Mr. Chairman, I hope you and members of the committee will 

carefully review the legislation known as the Louisiana Recovery 

Corporation, and in concert with your ongoing examination of the 

flood insurance program, in concert with the massive redevelopment requirements that are going to be needed for Mr. Taylor, myself, Mr. Melancon—and I want to get that on the record; it’s 

Melancon—that we are going to be around for a long time asking 

for a lot. We know it. 

We need to be held accountable; we need to be subject to reporting standards. We want to do this the right way. 

I thank you, Mr. Chairman. 

Chairman NEY. Thank you. 

The gentleman from Mississippi. 

STATEMENT OF HON. GENE TAYLOR, A REPRESENTATIVE IN 

CONGRESS FROM THE STATE OF MISSISSIPPI 

Mr. TAYLOR. Mr. Chairman, thank you very much for letting me 

appear before your committee. And on a private note, as someone 

from possibly the most affected area by the storm, I want to thank 

you in your capacity as the chairman of Oversight for allowing me 

to hire, within the limits of my budget, a couple of extra staffers 

because of the unprecedented amount of casework that has been 

generated by this storm. I thought that was incredibly generous on 

your part, and I think it should be noted by my colleagues. 

Mr. Chairman, I’m going to take about as long as Mr. Baker, so 

please indulge me. It’s going to take—this is of such great importance to so many people, that I just can’t say it in 5 minutes. I do 

think it’s important to walk my colleagues through this. 

Like most of you all during the August break, I took a couple of 

days off. Like most of you all during the August break, at night I 

11

gave speeches. But on the nights when I didn’t give speeches, I 

made shutters. I bought $2,000 worth of plasticized decking. No 

telling how many hundreds of dollars worth of stainless steel 

screws, deck caulking, and every night I made at least a pair of 

shutters, and many nights as many as three. 

On the weekends, when my son wasn’t working, we installed 

those shutters. I come from hurricane country. Preparing your 

house for a hurricane is not only a part of your life, it’s a part of 

your job as a dad, to show your son how to do it, just like my dad 

showed me. 

On the day of the storm, we actually finished installing the last 

pair of shutters, about 3:00 in the afternoon. The wind was kicking 

up to about 30 knots, and you can imagine how much fun it is 

being on a second story ladder trying to hold a drill in one hand, 

a screwdriver in the other, and a 50-pound shutter in your third 

hand, while your son is helping you. 

We got them all up. And then the routine is you move inside, and 

you start taking your furniture—none of which would be fancy by 

your standards—but you take the least desirable furniture, and 

you put it on top of the kitchen counter. You take the stuff that’s 

a little bit better than that, you put it on top of that. You take the 

stuff that you might have inherited from your folks, and you put 

that on top. 

Again, I live in a place that’s only 14 feet above sea level. But 

in the 28 years that I have lived it, I have never lost a shingle; it’s 

never flooded. But I do know that in Hurricane Camille it took 

about 2 feet of water, and that in Hurricane—I’m sorry, about 4 

feet of water. And Hurricane Betsy took about 2. We live in an area 

that comes to accept that. 

But the point that I’m trying to make in all this is there are 

some cynics in this town who would have you believe that somehow 

the people of Mississippi weren’t prepared for the storm, that they 

didn’t take the steps necessary to protect themselves. And that’s 

shear nonsense. 

The people of Mississippi—what happened in my home was going 

on in every home in south Mississippi simultaneously. Fathers and 

sons were buying plywood, boarding up their windows. They were 

taking the family possessions and trying to get them up off the 

ground if they thought their house was going to flood, or if they 

thought the roof was going to get blown off, or trying to find some 

common ground, as I did, when you imagine that both things could 

happen. And you want to take those things that are precious to you 

and try to protect them. 

My wife, simultaneously, was taking the family photos, putting 

them in Rubbermaid tubs, and taking them with us when we left. 

She had learned that lesson because both of her grandparents lost 

everything they owned in Hurricane Camille, including the family 

photos. And so, again, you learn to cope with this. It’s just a way 

of life. It’s like a disease. You try to prevent it, but you know if 

it comes you take the necessary steps to minimize it. 

So, for those people who were saying that somehow the people 

of my district, or any district, are trying to game this into getting 

rich, don’t kid yourself. Every one of us would rather have our 

houses back. All we’re trying to do is help make people whole. 

12

Historically, it is a place where people stay for a long time. My 

family has been there for 53 years. We’re relative newcomers, but 

the old timers can tell you about the storms in the early 1900s. 

They can tell you about the 1947 hurricane, the storm in the early 

fifties, Betsy and Camille. They can tell you about lashing a wooden skiff behind the house so that when worse came to worst, you 

pulled the skiff up, you put your family in it, and you went inland. 

In the case of my neighbor, Larry Larue, if it was a mild storm 

like Betsy, he went to his daughter’s house a quarter of a mile 

away. If a bad storm like Camille, he went to his brother’s house 

a half-a-mile away by boat. Again, you deal for this. You know it’s 

coming, and you take the necessary steps. 

What I am asking today, though, is to help those people who 

could not have envisioned this storm being as bad as it was. You 

see, houses that made it through Betsy, houses that made it 

through Camille—like mine—no longer exist. They are gone. There 

is nothing there but a line of debris. 

And you could say, ‘‘You should have known better,’’ but these 

places were there, in many instances, since the Frenchmen landed 

in 1699. They were also backed up not only by local knowledge, but 

by the knowledge that our Nation provides for us the Federal Flood 

Insurance Plan. 

One of the things I would like to point out is that there will be 

some people who say that, ‘‘You should have known your house was 

going to go, you should have bought flood insurance. And if you 

didn’t, shame on you.’’

This is a Federal flood insurance map drawn by Government experts in Long Beach, Mississippi. This area fairly close to the water 

is the flood plain. As Congressman Baker pointed out, if you live 

in this area and you go to buy a house, your banker is going to tell 

you you have to have Federal flood insurance. They won’t guarantee your loan if you don’t have Federal flood insurance. So everyone in this area buys it. I was one of those people who lived in an 

area that required Federal flood insurance. I had it. 

This is the map that another Government agency, the Corps of 

Engineers, tells us—the exact same block. Remember? One was 

very close to the water. This is what the Corps of Engineers tells 

people south of Mississippi that in the event of a bad storm, ‘‘All 

you guys need to get out of here.’’

So, we have the National Flood Insurance telling folks basically 

just down here you need to worry about a storm, but the Corps of 

Engineers telling you all the way up here—now this is about 10 

miles—‘‘In the event of a bad storm, you need to get the heck out 

of there,’’ based on Government information. 

This is what happened in just one of the towns I represent. This 

is Long Beach, Mississippi. Now it’s a little strange looking at it 

from the sky, but it’s the same map as the first one. This lighter 

stuff that you’re seeing is debris. It was people’s houses. You don’t 

see any big chunks of houses because they have been just broken 

up into small pieces again. 

What you will find very interesting is, again, that flood line of 

where you are required to have Federal flood insurance because the 

American experts told them so is about right here. What this is is 

a 100-foot-long barge that at light draft draws 3 feet of water, but 

13

this one was full. So it draws over 6 feet of water. It’s several 

blocks inside where the Government—I’m sorry, it’s several blocks 

above where our Nation’s experts told these people they had to 

have Federal flood insurance. 

This was a casino barge. Used to be down here floating. It’s now 

on the wrong side of Highway 90. This is another barge on the 

wrong side of Highway 90. The storm surge, as you can see—this 

is where it ended; this is where the pieces of people’s houses ended 

up, well beyond what our Nation’s experts told them the storm 

would take them to. 

Now why do I say all this? The point is not to help me, because 

I had flood insurance. It’s to help those tens of thousands of south 

Mississippians and south Louisianans who lived outside of the 

flood plain that our Nation’s experts told them they should expect, 

who their bankers, like Congressman Baker just told you, said, 

‘‘Look, you’re outside the flood plain; you don’t need flood insurance, no use wasting your money.’’ And it is relatively inexpensive. 

But I will take it a step further. In August, the Consumer Federation of America, the folks that are supposed to be out looking 

for us, helping us out, actually issued a press release talking about 

ways that people waste money on insurance. One of the things they 

listed in the way that people waste money on insurance, one of the 

examples was those people who live outside the federally-mandated 

flood plain who buy flood insurance. 

So when you say that maybe these guys should have known better, I hope I have provided you with some examples of why they 

don’t. And there is probably some people who say, ‘‘Well, they are 

just dumb Bubbas.’’ You know? ‘‘Who cares about them?’’

Well, Jerry St. Pe, the former president of Ingalls Shipbuilding, 

13,000 employees, builds one half of our Nation’s surface fleet, isn’t 

a dumb Bubba. Ricky Matthews, the publisher of the Gulf Publishing Company, his son Harold, is not a dumb Bubba. U.S. District Judge Lou Guirola, appointed by this administration, is not a 

dumb person. My predecessor, Cy Faneca, one of the smartest attorneys in south Mississippi, is not a dumb man. 

What all these people have in common? They lived outside the 

federally mandated flood plain; they did not have flood insurance; 

and they are getting no coverage. Now, why are they getting no 

coverage? Every one of them had wind insurance, every single one 

of them. But if you read down in that wind policy, there is a provision in there that says if there is wind-driven water, they don’t 

pay. 

So, if the wind knocks a tree into your house during the storm, 

you’re okay. If the wind blows your neighbor’s house into your 

house during the storm, you’re okay. But if the wind generates a 

30-foot wall of water that caused the kind of devastation—that’s 

just in Long Beach; there are actually places worse than Long 

Beach—a 30-foot wall of water that picked up the Bay St. Louis 

bridge and threw it over in the bottom of the bay, you’re not covered. 

I’m trying to make those people whole. Like the rest of us, they 

probably had credit card bills. Like the rest of us, they had mortgages. But now, unlike the rest of us, they suddenly have a house 

that’s either uninhabitable, at best, or gone, at worst. And their inVerDate 0ct 09 2002 19:39 Jan 10, 2006 Jkt 000000 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 G:\DOCS\109.60 RODNEY
14

surance company is saying, ‘‘We’re not going to pay you a dime because that was water and not wind.’’

There are a couple of ways we could address that. We, as a Congress, don’t make the sun rise and set. But we, as a Congress, do 

decide what to call the number of—the time of day that that sun 

comes up and the sun goes down. We call it Daylight Savings Time. 

We, as a Congress, could say to the insurance companies, ‘‘That 

was wind-driven water, that 8 inches of rain don’t cause a 30-foot 

flood of water, and you are going to honor those insurance claims.’’ 

I’m not so sure that my colleagues are willing to do that. 

Second thing we could do is just come up with some money, just 

give them a grant. Again, I got here; I got elected on the day of 

the San Francisco earthquake. One of the first things I did was to 

vote to help those people. Since that time, there has been a big 

flood in the Midwest. I voted to help those people. Hurricanes in 

South Carolina, in Florida, Texas, I voted to help those people. 

So we could just vote to give them some money. Or we could take 

a third step. And we could allow those people—prudent, smart people, who lived outside the flood plain, who weren’t required to have 

flood insurance, but now find themselves in this horrible bind—we 

could allow them to pay 10 years back premiums, take a 5-percent 

penalty, and then file a claim up to the value of their wind coverage, or the $250,000 that Mr. Baker told you about, whatever is 

less, and file a claim as if they had been in the program all along. 

Furthermore, much like Congressman Baker is telling you about, 

we would then require them to stay in the program as long as they 

own that house so that they can’t game the system, get a check 

today, tell us goodbye tomorrow, and so that they don’t file the 

multiple claims that he is concerned about. And I share his concerns. 

That’s what the legislation does. I am very fortunate to have 

about 40 of my colleagues co-sponsor it. I am very fortunate to have 

Congressman Frank help us put this together. It has been endorsed 

by the Mississippi mortgage lenders; it’s been endorsed by the Mississippi bankers. I would hope it would be endorsed by you. 

You know, basically what it’s doing is in a time of severe—and 

believe me, you guys have been great. Every one of you, at one 

time or another, has walked up to me since the storm and said, 

‘‘What can we do?’’ This is something you can do. 

I am asking basically the same thing we asked for as 

congresspeople. We got here because we asked other people to help 

us, and we got here—and the other thing we got in our lives is 

every one of us got a second chance. I am asking to give the little 

league coach, the preacher, the people who have invested in south 

Mississippi a second chance because if they don’t get it, tens of 

thousands of Mississippians will have their mortgages foreclosed. 

We can sit back and do nothing, or we can help them. I am asking 

you to help them. 

Thank you, Mr. Chairman. 

[The prepared statement of Hon. Gene Taylor can be found on 

page 140 in the appendix.] 

Chairman NEY. Thank you. I want to thank both gentlemen for 

your very compelling testimony. And I will turn—are there questions of the members? Gentlelady from California? 

15

Ms. WATERS. Yes. First, let me just say to the Members representing these areas that you are absolutely correct about the feeling of your colleagues about what you are going through and what 

your constituents are going through. And we certainly appreciate 

each—everything that you do to try and make your constituents 

whole, to try and help them. This has been a monumental disaster. 

We all recognize that, and we want to help. 

I am listening to the bills that you are proposing, and of course 

I want to take a close look at them to see if there are more questions that I may want to raise with you, starting with you, Mr. 

Baker. 

I want you to know that even though you describe this as not 

being taxpayer money, that we care as much about constituents 

who pay premiums as we do about just taking the money from the 

Federal coffers if there were no premiums involved. We believe that 

these people should be respected, and we should do everything that 

we can to help them. 

When you talk about creating a new authority, does this mean 

that this overrides the city role and the State role in helping to 

bring about some relief and some rehabilitation? How has this idea 

come together? Are all of these entities involved in some way? Who 

is the appointing authority, and who will run this authority? Who 

will sit on this authority? 

Mr. BAKER. As you are aware, Mayor Nagin has appointed his 

commission; Governor Blanco has appointed her commission; the 

President has said he would like to see the redesign of communities 

adversely impacted be built from the bottom up, meaning local 

community, homeowners, elected officials, local planners come up 

with the ideas of how they would like their community to be restructured. 

The proposal that I am offering is only the mechanism by which 

we pay for whatever it is the local community decides should be 

done. Public hearings, involvement—as I indicated in my testimony, if an individual doesn’t want to participate, you can stay 

right where you are with whatever asset you have got, and you are 

outside the process. If you want to take money and move on, we 

provide that option. If you want to be a partner in the development, we provide that option. If you want to take money, and wait 

and see, and come back and buy in later, we provide that option. 

This is a homeowner-sensitive plan where homeowners decide 

what should be done with their property. We merely provide mechanisms for them to have choice. It does not require that anyone 

take any step at all. 

But when you are very pragmatic about the problems we face, if 

you look at Mr. Taylor’s community where there is no fire station, 

there is no police department, there is no school, there is no bakery, there is no daycare, who goes in first? 

We have to have levee restoration first, environmental remediation second, to get the bad stuff out, and then we need to prepare 

large tracts of land for development to occur. The plan can be generated at the local level. The debt that will be issued will be approved by the Treasury. 

The commission, which—will be a presidentially-appointed commission with the Governor submitting names for positions on the 

16

commission to be appointed by the President, and it’s the meeting 

of what I call taxpayer accountability to your constituents with 

local planning saying how we would like to have resources deployed, done in the full light of day where everybody can understand where their stake is in the future development. 

It is not an attempt to take anybody’s property away from anybody. 

Ms. WATERS. Is the debt scored against the budget? 

Mr. BAKER. No, it is not. And let me also quickly add that if this 

tract looks like this table, and it’s clean, and we have a plan developed by the community, and we have 10 guys who come in and 

submit proposals, then the commission can accept which proposal 

they think makes the most sense, not just from a taxpayer view, 

but from a community view. 

So if a guy has got green space, he’s got all sorts of community 

services involved in his proposal, that’s the proposal we take, and 

that’s the taxpayer take-out. They buy the land back from the commission for their development purpose. So that’s where the taxpayers get some relief. 

This is different. We have never done it this way before, but 

there are models. We have had three different Government agencies in our history which have been real estate acquisition and disposition entities, and this is modeled after those. 

Ms. WATERS. But a little aside from this—and if you will bear 

with me, Mr. Chairman—I had not intended to ask this question, 

but because I am so deeply involved in the issue of eminent domain, I want to ask it of you now. 

As you know, the Supreme Court decision in Callo basically allows for the taking of private property for private use. Would you 

support efforts that are being put together here in Congress that 

will protect those homeowners from having their property taken for 

private use, private property for private use? 

Mr. BAKER. Certainly. And as I said at the outset, if an individual chooses not to participate, wants to take their land, as it is, 

without any——

Ms. WATERS. That’s okay. That’s fine. I got that. 

Mr. BAKER. And secondly, the only utilization of the authority of 

eminent domain would be if you decide to sell, and if you are negotiating price—and keep in mind, you have decided to sell, and you 

want to move on—that a dispute as to value will enable us to take 

property and then litigate value in court so the development may 

proceed. 

But it is only after you decide that you want to dispose of your 

asset that the right of eminent domain may be deployed. And it 

comes after a very extensive process. But as to utilization of an individual’s property——

Ms. WATERS. In the taking of land for a public purposes——

Mr. BAKER. Correct, I understand. 

Ms. WATERS.—fair market value is decided. What would be different in this situation that you are describing? 

Mr. BAKER. Well, only that the individual thinks the fair market 

value is different from that established——

Ms. WATERS. But that’s not how it works in eminent domain for 

public purposes. An individual may ask $1 million for a $200 piece 

17

of property, but fair market value ends up ruling the assessments 

that are done. 

Mr. BAKER. You do have a judicial right to dispute——

Ms. WATERS. Yes. 

Mr. BAKER.—to go to court——

Ms. WATERS. Yes. 

Mr. BAKER.—to litigate that value. And that’s all that I am saying. While that litigation dispute is ongoing, you cannot then hold 

up the recovery of a community where your property is essential 

for that public purpose to proceed. 

Ms. WATERS. So you would support, under some circumstances, 

the taking of private property for private use? 

Mr. BAKER. In this case, it’s taking a private property for a public use. The restoration of communities is a public use. If I were 

going to take your property and turn it into a casino, I would have 

a problem with that. If I want to take your property and turn it 

into a city, I think that’s a public use. What we are doing here is 

restoration of cities. 

Ms. WATERS. Well, that is going to be an issue that a lot of people would have to take a very close look because the implications 

are so great, and we—this is a great opportunity to watch and see 

what happens, not only with that Supreme Court decision, but 

what we are able to formulate here, as public policy, to deal with 

that particular issue. 

And finally, let me just ask you some questions about mapping 

because you are very knowledgeable about the flood insurance program, and one of the big complaints, as I remember it, is that the 

mapping is outdated, that it did not take into consideration, often 

times, the flood plain areas, et cetera, et cetera. 

And if that is true, does Government bear some responsibility in 

a very special way if people thought they were not at risk because 

of the outdated mapping or the incompetent mapping in these 

areas? 

Mr. BAKER. You are correct. A flood is an animal. It changes 

shape every day. If you are living in a community that historically 

had no flooding problem and there is a development above you in 

the flood plain—a shopping center where now you have concrete 

where there once was grass—if downstream maintenance by another political subdivision has not kept pace and there is growth 

in the drainage outlet so you have more water coming down more 

quickly with an inhibited ability to drain water, historically, that 

got out, in consequence is the person in the middle of that pipe gets 

flooded. 

It’s not of their own making. It’s not even within their political 

jurisdiction. But the consequence is water is in their home. 

The mapping really needs to be done almost annually because 

the dynamics of development and the inhibitions to drainage are 

continually changing. We have snapshots. And we say, ‘‘Because 

you look like this, in March of 1984,’’ or whatever the date might 

be, that determines whether or not you are compliant with the 

rules. That is a very unfortunate system. 

Given our technological capabilities today, it ought to be an annual assessment requirement. At least a fly-over with aerial photography——

18

Ms. WATERS. Will that be reflected in your legislation? 

Mr. BAKER. My legislation only deals with the recovery of 

the——

Ms. WATERS. It does not deal with the mapping problem? 

Mr. BAKER. That’s correct. 

Ms. WATERS. Okay. One more—this is—I’m so sorry. 

Mr. BAKER. I’ve got one answer left. 

Ms. WATERS. I beg your pardon? 

Mr. BAKER. I said I have one answer left, so let’s——

Ms. WATERS. No, I bet you got a lot. I’ve never known you not 

to have an answer. 

[Laughter.] 

Chairman NEY. Let’s just compromise, one question and one brief 

answer. 

Ms. WATERS. Well, maybe I don’t have another question. So you 

can reserve that answer. 

Mr. BAKER. I will save it for next time. 

Ms. WATERS. No, you give it to somebody else. I know you are 

just waiting to do it. Okay, thank you very much. 

Mr. BAKER. I thank the gentlelady——

Chairman NEY. If there are no further—Mr. Neugebauer? 

Mr. NEUGEBAUER. Thank you, Mr. Chairman. I was down in New 

Orleans last Sunday and saw the tremendous devastation, not only 

just in the New Orleans area, but then we flew out to the LaFayette area and flew over the rural areas. And you know, we’ve got 

people who have lost all of the infrastructure that’s necessary to 

carry on their agricultural activities. 

I think in some ways I associate myself with both of your remarks because one is the frustration that we have insurance companies that are carrying insurance in that area, and yet they have 

excluded, you know, maybe the greatest risk in those storms. 

I know that, from a home-building standpoint, being a former 

home-builder, we have done a lot of innovation as far as building 

new structures and buildings to where they are able to sustain the 

high winds of hurricanes. And so, from a wind standpoint, we have 

been able to mitigate a lot of the damage that occurs from the 

wind. 

But I almost think, Chairman Baker and Congressman Taylor, 

I mean, one of the things we may need to look at is coastal insurance and not just hurricane insurance or flood insurance. But 

maybe what we need to look at—and I agree with what the gentleman said about the technology today—we have the ability to fly 

over those areas, digitize them, and then model what could occur 

in certain kinds of storms. 

And certainly we’re not going to be able to model every storm 

that occurs, but I think we can do a better job of modeling that. 

Then, I think we’ve got to take that modeling data to the insurance industry and say to them, ‘‘Let’s come up’’—and I think also 

to allow people to carry coverage that the risk they’re taking, that 

if I’m going to go build a $1 million home on a beach area, that 

I am responsible for covering the risk that I am taking. But we 

have to provide a product for them to cover that risk. 

And I have dealt with flood maps, and they are easy to amend. 

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storm, most of the time of just falling rain or rising water in—from 

other drainage areas. 

But I think one of the things that’s not in place, and what’s so 

terrible about that, is that we have got people in three States now 

waiting to see what the United States Congress is going to do so 

that they can get on with their lives. 

Where if in place they had a coastal coverage, it’s a question of 

adjusters coming out and saying, you know, ‘‘Here is—you have 

sustained a loss, and here is your check,’’ and then people can 

make the decisions that they need to make to go on with their life. 

Chairman Baker, I like your idea because one of the things that 

struck me when I was in New Orleans, being in the land development business, is that what needs to happen is there needs to be 

a market-driven activity developed into that plan. We can’t assume 

that everybody is coming back to that location. And there may be 

areas that are not going to be adequately protected in the future, 

and those areas will have to be dealt with. 

I want to look more at your plan, but I do like the fact that it 

provides a basis for some private activity. I think that if we send 

a signal to those States that the Federal Government is going to 

come in here and try to fix all of this, the private sector will stay 

home. I do not think they will participate. 

But I think if we provide an adequate environment where the 

private sector can come and participate, where we have then a plan 

in place, or a coastal coverage in place, where if I’m going to come 

back in to New Orleans, or going to come back in to Mississippi, 

that—and I’m going to build that home—that if I build it, I can 

cover the risk that I am taking of building that. 

So I think a multi-faceted plan has got to really think coastal 

flooding, and not just certain kinds of storm surges, but what happens in these catastrophic situations and with the understanding 

to the insurance industry that we can’t cover every risk. There are 

just certain things that happen. I mean, who knew that 9/11 was—

we were going to be worried about airplanes flying into buildings? 

But I do believe today, in some cases, the flood insurance program does work. But I think what we have seen in the coastal 

areas is that we do not have an adequate one. And it has got to 

be one—and as you said, Chairman Baker—where we encourage 

participation. 

And you can do that in two ways. You can in the quality of the 

product, but I think you also have to say to Randy Neugebauer 

that, ‘‘If you come and build that million dollar house on the beach, 

and you don’t cover the insurance, it’s your risk, and you’re not 

going to ask the American people to take that risk for you.’’ And 

I think that’s a fair thing. 

So, I look forward to having some meaningful debate with both 

members because I think we have seen a hole in the system that 

we do need to address. 

Mr. BAKER. I thank the gentleman, I just want to make a brief 

response in that in my capacity as chairman of capital markets, 

which has jurisdiction over insurance matters, we will have a very 

thorough examination of the practice of how we address the exposure and the risk. 

20

As insurance is constructed, you spread risk across a broad number of participants on the belief that, ultimately, only a certain 

number of people will make claims and, therefore, it is actuarially 

sound. 

Mr. NEUGEBAUER. That’s right. 

Mr. BAKER. Today, we have a concentration of loss without a 

broad distribution of premium payers. And I think it’s pretty evident one of the remedies that might be pursued. 

Secondly, a discussion going forward about wind-driven water 

versus wind-driven trees is a pretty intriguing one. And the difference during the storm, if your house burned down you got the 

face value of the policy. If you bought more insurance than the loss, 

and it burned, you get the face value. If it’s wind-driven, you get 

actual loss; and if it’s flood, you get $250,000. I don’t care what you 

want to buy. There is no logic to that insurance strategy. 

And so, we need to have good public discussion, and going forward, talking about how—the risk people face, living in coastal 

areas. 

And the last point. People have to live in New Orleans. Your 

home heating oil bill will reflect that this year. Your price at the 

gas pump will reflect it. If you are a Midwestern farmer exporting 

corn or grain, 65 percent of that goes through our ports. If you like 

seafood, 32 percent of the Nation’s seafood—I mean, fir, for goodness sakes, comes out of Louisiana. I mean, I didn’t know that. 

We are a big producer of matches. Where did that come from? 

This area is economically essential, and people are going to go 

where the jobs are. Therefore, people are going to live next to the 

coast and have this risk, and we need to have an adequate insurance net to keep a catastrophic loss to the American taxpayer. 

Mr. TAYLOR. If I may? 

Chairman NEY. Mr. Taylor? 

Mr. TAYLOR. To your point—and I guess I’m a lot closer to this 

than I wish I was, since I’m one of those people whose house now 

looks like that debris line—what’s really frustrating is—and I will 

point to myself—when the agent came to what was my house, 

walks around a piece of tin roof that’s a half-mile back, piece of 

slate floor over here, sink is quarter of a block over that way. 

And what they do is they say, ‘‘Well, we’re prepared to pay on 

your flood insurance,’’ to which I reminded them that’s mighty generous of them. ‘‘That’s Federal money, not’’—I won’t name the company, ‘‘—not your money.’’

He says, ‘‘Well, we’re not so sure about this wind policy.’’ What 

really tens of thousands of people are seeing now, despite the fullpage ads being run by the insurance industry saying, ‘‘We’re there 

for you,’’ is the insurance industry really trying to find every reason that they can not to pay the claim. 

And it really is the little individual down on his luck, worst of 

circumstances, out of a house, out of a job, still got that mortgage 

to pay, and the great big insurance company saying, ‘‘And by the 

way, where is the evidence for you to prove that it was water and 

not wind, and wind and not water,’’ because they’re trying to play 

it both ways. 

One of the things that I would hope would come of this—it was 

after Hurricane Camille, the devastation of Hurricane Camille, 

21

that this Nation started the Federal Flood Insurance Program so 

that people could pay to mitigate their own risk, those people who 

live in areas that are going to have hurricanes. 

But what we have seen is that when you leave a loophole, the 

smart guy is going to figure out a way not to pay. If the private 

sector doesn’t step up to the plate—and I will leave that ‘‘if’’ 

there—then I think we, as a Nation, are in the business of looking 

out for people. 

And if the private sector won’t do it, then I think we, as a Nation, have a responsibility to do it. And maybe it shouldn’t be called 

flood insurance; maybe it should be called natural disaster insurance so that we, as a Nation, aren’t trying to find a reason not to 

pay people claims, people who have paid their premiums faithfully 

for 10, 20, 30 years. Maybe we, as a Nation, will treat them a little 

bit better. 

And by the way, Congressman Baker is exactly right. We, as a 

Nation, doing a pretty good job of paying our claims on the flood 

insurance program. Yes, the losses are limited to a quarter of a 

million dollars—and again, in a lot of places that’s a lot of money. 

For some of these newer homes that have been put up in the past 

few years, that doesn’t begin to pay for them. And certainly, raising 

the cap absolutely is something we need to look into. 

But the other thing is, if the private sector isn’t going to treat 

the people of Mississippi, of Louisiana, of Texas, of Florida, South 

Carolina, wherever it occurs—80 percent of all Americans in the 

next 50 years are going to live within 50 miles of the coast. And 

if the private sector is not going to step forward and treat them 

properly, as someone who has voted for almost every single tort reform measure that has come before this Congress, I will be the first 

to say if they’re not going to do their job, then I think our Nation 

has to step up and do it. 

Chairman NEY. I want to thank you. I want to also remind members we can continue to question, ask questions of the members. 

We have a vote at 11:45. We do have an, I think, important panel 

with Mr. Maurstad and Mr. Jenkins, but again, if you would like 

to ask questions—gentleman from Massachusetts? 

Mr. FRANK. Let me first yield to the gentlewoman from California. 

Chairman NEY. All right. 

Ms. WATERS. Thank you very much, and I will be quick with this, 

and I would like to ask both of the members if you are willing to 

support the cost of what you are advocating even if there are no 

offsets, as it has been discussed by the administration—because I 

think you have good ideas—when you establish a commission, for 

example, it costs money. And some of the other aspects that you 

can’t enough determine now will cost money. 

And I am feeling very strange by the rumblings that I am hearing that we can’t pay for making these citizens whole and taking 

care of this problem unless we find some deep cuts in other places 

that offset. How do you feel about that, and are you going to stand 

up for your constituents even if it costs money to do so that you 

can’t find offsets for? 

Mr. BAKER. I come to agreement with you, Ms. Waters, and from 

a slightly different perspective. To a great extent, I am so overVerDate 0ct 09 2002 19:39 Jan 10, 2006 Jkt 000000 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 G:\DOCS\109.60 RODNEY
22

whelmed by the Nation’s generosity, private and public dollars that 

have been made available to us; we have not been the recipients 

of that kind of assistance before. 

But you have written one check. How do I come back to you and 

say, ‘‘I’m going to cut your programs and make you pay twice?’’ I’m 

asking you to make two commitments to me. I’m not going there. 

Now, I don’t know what the thinking is. The plan I’m putting forward has a provision for the sale of property at the end to get taxpayers some money back. I feel I’ve got to do that. I feel we need 

to be very transparent, very accountable, show you where every 

dollar goes, and if you find something that’s wrong, let’s correct it. 

That’s the way we—at least I believe—we should conduct ourselves 

in this disaster. 

Chairman NEY. Mr. Taylor? 

Mr. TAYLOR. Ms. Waters, I—my vote sent over close to 2,000 

young Americans over to Iraq to die. My vote also sent billions of 

American dollars over there to build schools, build roads, build 

water lines, build sewer lines. I didn’t ask for an offset to help the 

people of Iraq. I’m not going to ask for an offset to help the people 

in Mississippi, Louisiana, or Texas. 

Ms. WATERS. All right. I yield back to the gentleman from——

Mr. FRANK. I thank the gentlewoman. 

Ms. WATERS. Thank you. 

Mr. FRANK. And let me just say that I am impressed by the dignity, as well as the moral seriousness, of both answers, and I hope 

that it becomes the public policy. 

I would just say that the gentleman from Louisiana, he has also 

been in the forefront of our effort—because one of the things we’re 

going to have to do, and obviously there is room for the private sector, but when it comes to building housing to be inhabited by people who are $40,000, $30,000 a year in income and below, there 

should be no way that’s going to be build without some public—

some other source of funds, particularly in an economy where people have lost their jobs and have lost what they had. 

So I think that makes it all the more important to pass the Affordable Housing Fund, and the gentleman from Louisiana has 

been working diligently on that. And I hope that next week we can 

get that through, and that would be another source of money. 

Beyond that, I just wanted to ask Mr. Taylor—and I must say 

this has now started to hit me. People may have been reading or 

watching on television the story of a dam in Massachusetts that is 

on distress. It’s in my district, in the city of Taunton. I was up 

there yesterday, along with my Senators bringing our considerable 

engineering expertise to the job and maybe a little money as well. 

But—and it was pointed out to me by Mr. Riley on my staff that, 

you know, one of the problems is, I guess, if you live behind the 

dam, you don’t have to get flood insurance. I’ve got people, it now 

turns out, in my district who may be facing flood damage who 

aren’t insured. And one of the things I will do as of next week 

when this crisis has passed is to do something that I wish I had 

thought of before, which is to begin to tell people, ‘‘You better buy 

flood insurance, even though it’s optional.’’

But let me ask Mr. Taylor, because that’s something for the future. But for those people he is talking about—and I know there 

23

is some reference to million dollar homes, they’re doing this—how 

many million dollar homes in your district are we concerned about, 

Mr. Taylor? 

Mr. TAYLOR. Again, Mr. Frank, I hope I have made it clear—I’m 

first to admit I’m bad to mumble—I hope I made it clear we’re only 

asking in the bill that you and a number of others have helped me 

put together to pay up to the amount that people had insured 

themselves in the wind pool, or a quarter of a million dollars, 

which is the existing limit in the Federal Flood Insurance Program, 

whichever is less. 

Mr. FRANK. Thank you. 

Mr. TAYLOR. If someone only thought enough of their place to insure it for, for example, $160,000 in the wind pool, there is no reason for the taxpayers to insure it to the——

Mr. FRANK. All right, then let me ask you this. And I do think—

and you’ve done this, and it’s painful, but I—and we often, when 

we are focused on legislation, talk about what people think will be 

the problems if we pass it. 

If we do nothing, if we don’t pass the bill that you have sponsored, that I’m proud to co-sponsor, or we do nothing else to deal 

with the situation and the people whose housing losses will not be 

covered—and there will be lawsuits and things, but I’m not optimistic, I must say, and you’ve said the notion of—likelihood of us 

passing a bill that makes that decision about what coverage is, I 

think, is even less likely than your bill—if there was no congressional action, if things don’t change and the current situation 

doesn’t change, what happens to the people in your district? 

Mr. TAYLOR. Well, again, I am very appreciative that the President of the United States has been down to the district probably 

five times. I’m very appreciative that many of my colleagues have 

taken time out of their busy schedule to go see. Because even 

though you can see it on television, you really don’t get a grasp for 

just how bad that is until you stand and look at that mountain of 

debris. 

The likelihood that tens of thousands of south Mississippians will 

lose their houses as a result of this is extremely high. The President’s plan calls for tax breaks for people who come in from outside, invest in places like these down in Mississippi, and then after 

they fix something up and sell it high, they get to get those profits 

tax free. 

Well, that’s great for the fellow who comes in and preys on the 

misery of the poor guy who has got to sell his house. It does absolutely nothing for the poor guy who has got to sell his——

Mr. FRANK. What happens—if they lose their houses, what is the 

prospect for all these people—working people we’re talking about, 

maybe making $30,000 or $40,000 a year—what is the prospect 

that, having lost the house they had and lost the money they had 

sunk into it, and lost the downpayment, lost whatever mortgage 

payments, what is the prospect for large numbers of them getting 

a new house? How is that going to happen? 

Mr. TAYLOR. I think, Congressman Frank, you can answer your 

own question. I mean, two bad things can come out of this. They 

can have on their record that the bank foreclosed on their mortgage, or they can have on their record that they, you know, bought 

24

a house for $100,000 and sold it for $20,000 and that because of 

that then, therefore, could not pay off their credit card bill, could 

not pay off other loans that they may have had out. Their credit 

history is probably ruined from that point, and their chances of 

buying another house have been substantially diminished. 

We can try to make those people whole. Not even whole, just 

make them closer to where they were the day before the storm. 

Every one of them would rather have their house back. But at least 

we’re saying that we, as a Nation, are going to step up and try to 

help you save your house. And again, I appreciate my colleagues 

who have signed on to this bill. 

Believe me, if we could think of a better way, I would welcome 

anyone’s thoughts on a better way to make these people whole. 

Mr. FRANK. Thank you. And Mr. Baker indicated that he had 

something to add. 

Mr. BAKER. I just wanted to contribute. I come at it with a similar motive but a slightly different direction, with the Recovery Corporation, where we do provide for a mechanism not to make whole, 

but to provide for some reimbursement at the owner’s choice: cash, 

move on, stay part of the new development——

Mr. FRANK. Let me ask you, too. Your bill is Louisiana-specific. 

Is there any reason why that couldn’t be broadened, or——

Mr. BAKER. The only reason it is Louisiana-specific is because of 

the varying amount of debt that would be issued between Texas, 

Louisiana, Mississippi, Alabama, and we don’t want to have States 

competitive within Treasury——

Mr. FRANK. But the logic of your proposal would be that each 

State should have their own——

Mr. BAKER. Yes, that is correct. 

Mr. FRANK. Thank you. Thank you, Mr. Chairman. 

Chairman NEY. I would like to move on to the second panel unless members have a compelling desire to ask questions. 

Mr. PEARCE. If you don’t mind me making a quick comment—and 

I understand the sensitivity of the matter—I will just tell you—it 

needs better explanation—but in understand that we need to get 

to the next panel; the devastation is apparent. But I will tell you 

that there are single individual losses that occur every day that, 

because they don’t have the visibility, will never get paid. And we 

are asking people who are devastated individually to pick up the 

burden. 

And I would use examples of ranchers on the border that, due 

to the policy of our U.S. Government, we have fences stolen and 

the Government will not reimburse that. And people say, ‘‘Well, 

they should be ranching at a better place; they should have 

known,’’ same things that Mr. Taylor is saying, that they should 

not be on the border of where the people come up to the border and 

steal their goods. 

Just south of my district in Texas, the town of Zaragosa, Texas, 

about 15 years ago the entire town was blown away by a tornado, 

and it was not rebuilt with Federal funds. 

When we look at compassion—someone said if the private sector 

is not going to pay, we, as a Nation, should pay—when we begin 

to use the Government for compassion, I will tell you it is very difficult because compassion to one is uncompassion to another. And 

25

if we go back and review the decision to pay the people $1 millionplus at 9/11, it was full of compassion, full of heartfelt understanding of the loss. 

But what it said to the families—my district was the one who 

was at Bataan, it was the Mexico National Guard that served and 

died in the Bataan Death March—and what it said to those people 

who lost loved ones in Bataan is that, ‘‘Your loss is somehow not 

compensationable.’’ That’s not a very good term, but we are not 

going to compensate your loss, but we are going to compensate the 

victims of 9/11 because it is so much more apparent, and it is so 

much more—we have got the political desire to do that. 

I will tell you that we are all going to wrestle with this problem. 

I understand the economic devastation, but keep in mind it was in 

my district, a district with no earthquake experience throughout 

our history, and about 15 years ago an earthquake came. We’ve got 

oil wells which stick 7,000 and 10,000 feet deep, and those oil wells 

were completely broken. 

There was no one there to say, ‘‘We should pick up the pieces for 

you; we should try to recreate the jobs; we should do these things.’’ 

And I will tell you that as emotional as it is, if we pay for one and 

don’t pay for every one, we are making some judgement errors that 

we will live with a long time. Thank you, Mr. Chairman. 

Mr. TYLER. You know, I hope you know I pride myself on my desire to balance the Nation’s budget. And we probably look at this 

differently. I voted against almost every tax break because I didn’t 

see how we could simultaneously increase spending, cut taxes, and 

somehow make it all work, and prepare for things like this and future wars. 

I guess what is different is the scale, quite frankly. I also feel fortunate to know people who have survived the Bataan death march. 

I know a guy who at 16 received the Congressional Medal of Honor, 

lied about his age to get into the Marine Corps, dove on two hand 

grenades at the Battle of Iwo Jima. He’s a south Mississippian. 

There are 38,000 people in south Mississippi who don’t have 

homes. Seventy percent of the people in my home county either 

have no home or now own a home that is uninhabitable. I think 

it’s the shear scale of it. And I do understand we can’t do everything for everybody. 

But, you know, there is going to be some cynic out there—maybe 

one of the next panelists—who is going to say, ‘‘They should have 

known better.’’ You know, that blind cleric by the name of Raman 

got a guy to drive a truck full of explosives into the twin towers 

with the idea of setting off an explosion in the basement, toppling 

one tower into the other, and killing all the occupants. That happened around 1994. 

I guess a person could say, ‘‘Well, those people should have 

known it was a target of terrorists,’’ but I didn’t say that. I voted 

to help make those people’s—I can’t bring back the people who 

died, but I tried to make the people—the lives of the survivors a 

little bit better. I thought it was a prudent thing for our Nation to 

do. 

And you’re right. When you consider that compared to what happened at the Bataan Death March, or the people in World War II, 

the guys who were slaughtered on the beaches in Normandy, you 

26

can’t make every wrong right. But you can do some things. And 

those things we can do, we should do. 

Chairman NEY. Thank you. Mr. Blumenauer? 

Mr. BLUMENAUER. Mr. Chairman, I appreciate your courtesy in 

permitting me to sit in on this. I want to commend these two gentlemen for the big picture that is being offered up. And I am hopeful that there is a way to approach it in the spirit that I think in 

which it is offered. 

I think we heard people ask for tweaks. We have been privileged 

to work with Mr. Taylor as he has brought this concept forward. 

But I think we are putting on the table two big items in terms of 

scale of reconstruction and type of partnership. 

I commend Mr. Baker for calling the question, and look forward 

in various committees, how we can come together to see what can 

come from this challenge. And his approach is the biggest scale I 

have seen to this point, and I think it is worthy of serious consideration. 

And I appreciate Mr. Taylor and the work that he has done in 

terms of calling the question about the nature of the flood insurance program and how this committee has already acknowledged 

that more money is going to be needed anyway. This is an opportunity to deal with this issue in a more comprehensive way keeping 

the integrity of the program, but dealing with people who have 

really been taken unawares. 

I appreciate the spirit with which both gentlemen have offered 

their proposals and the way the committee has been approaching 

them. And I think there are lots of us on the outside world that 

would really love to continue working with you and with them because this is the sort of thing that I think is ultimately going to 

get us to the situation and resolving it. 

Chairman NEY. I am sure that this will not be the last of these 

discussions. Any other members? Mr. Melancon? 

Mr. MELANCON. I want to thank both of my colleagues, Mr. Taylor and Mr. Baker, who I am proud to say I served with. The efforts 

are good. We have got a long way to go. 

To the gentleman who was concerned just a minute ago, just for 

the record, tornadoes are covered by property insurance policies. So 

if they rebuilt, if they had insurance, they didn’t have a problem. 

This is a situation where people had insurance, and they are not 

covered. And this is a situation where in St. Bernard Parish alone 

I think the number is 24,000 or 34,000 homes are uninhabitable 

and not covered if the insurance companies have their way, by the 

policies that they thought would take care of them. 

Mr. BAKER. If the gentleman would yield on that point, I have 

also learned that when a properly conducted business owner acquired business interruption insurance, if your supplier was in Orleans and the supplier was wiped out, you’re covered. But if your 

business was in Orleans and you were flooded, you’re not covered. 

Mr. MELANCON. That’s right. 

Mr. BAKER. So smart business people buying product they 

thought to protect them prudently turned out not to be so prudent. 

Mr. MELANCON. Thank you, sir. 

Chairman NEY. Any other members? 

[No response.] 

27

Chairman NEY. I want to thank both the gentlemen. 

Moving on right away to panel two, I think what we will do is 

have a vote. We should probably do that and come back. I won’t 

return; I have got another appointment—I thought this would end 

by noon—but somebody will be here, you know, obviously, to chair. 

So I just wanted to make one comment because I won’t be back 

here. I think that if we—well, my question is going to be—and it 

will be asked for me—is, is the White House actually going to submit a request for—to up the debt relief. 

And just a personal opinion, if that happens, we ought to have 

instantaneous accurate mapping if we are going to spend all that 

money. 

On another note, we would remind members that you are not 

going to be able to answer all the FEMA questions that we want 

answered about housing and situations like that. But as a personal 

editorial, if we are looking just for FEMA’s information—not 

yours—but if we’re looking for helping people down there, taking 

away Davis-Bacon living wage is not a way to help people down in 

that affected area. 

With that, we will recess. 

[Recess.] 

Mr. PEARCE. [presiding] The meeting will come to order. Our second panel is Mr. David I. Maurstad, acting director and Federal insurance administrator, mitigation division, the Federal Emergency 

Management Agency, the emergency preparedness and response director in the Department of Homeland Security. And if he has to 

announce his title every day, it takes about a third of the work day 

just to say that. 

And the second witness will be Mr. William O. Jenkins, Jr., director of homeland security and justice, U.S. Government Accounting Office. 

Mr. Maurstad? 

STATEMENT OF DAVID I. MAURSTAD, ACTING DIRECTOR AND 

FEDERAL INSURANCE ADMINISTRATOR, MITIGATION DIVISION, FEDERAL EMERGENCY MANAGEMENT AGENCY, EMERGENCY PREPAREDNESS AND RESPONSE DIRECTORATE, DEPARTMENT OF HOMELAND SECURITY 

Mr. MAURSTAD. Thank you, Mr. Pearce, members of the subcommittee. If I can have the written remarks part of the record, I 

will——

Mr. PEARCE. Could you ensure that your microphone is on and 

pulled up close? 

Mr. MAURSTAD. Yes, sir. Is that better? Thank you. And let me 

first say that I appreciate the opportunity to appear this afternoon. 

I have personally observed the area down in the Gulf Coast area, 

the damaged areas, and been there and witnessed the devastation 

that was talked about earlier, and have been working with the insurance commissioners of the affected States, and want to continue 

to express my sympathy and prayers for all of those that are affected. 

I would like to focus my remarks, oral remarks, on the financial 

condition of the National Flood Insurance Program, as seen 

through the prism of Hurricanes Katrina and Rita. 

28

However, I want to take the opportunity, in addition, to emphasize that NFIP is more than just an insurance program. It is flood 

risk identification, the importance of which is demonstrated with 

the 5-year $1 billion flood map modernization effort that is underway with the support of Congress and the Administration, which 

leads to an important aspect, and that’s the company participation 

and community participation in the National Flood Insurance Program. 

There are over 20,100 communities that voluntarily agree to participate in the program. Part of that agreement deals with the 

mapping. The Federal Government doesn’t impose the referenced 

maps on local communities. Communities agree to participate; they 

agree to adopt the flood maps to guide them with the second aspect 

of what I want to share with the committee that deals with flood 

plain management. 

So when they adopt those flood maps, the proposed flood maps 

that we provide to them, they are adopted on the basis that that 

is the minimum requirement to participate in the National Flood 

Insurance Program. Communities have the ability to adopt maps 

that go beyond the 100-year flood, and many communities do do 

that. 

The sound flood plain management component of the NFIP saves 

this country an estimated $1.1 billion in preventative flood damages annually. That means that since 1996, the Nation has reduced 

the risk of flood by $10 billion. In addition, the structures built to 

NFIP criteria experience 80 percent less damage than structures 

not built to those standards. 

Having said that, let me return to the financial situation of the 

National Flood Insurance Program on the heels of Katrina of Rita. 

On September 20, 2005, the President signed H.R. 3669, which increased the NFIP’s borrowing authority from $1.5 billion to $3.5 

billion. 

However, as Katrina and Rita-related claims will exceed this 

amount, I am authorized to request from the committee that $5 billion be added to this authority. This stop gap measure should allow 

sufficient borrowing authority to cover claims through mid to late 

November, which would enable us to work with this committee and 

others to complete meaningful program reform recommendations. 

It is also important to note that since 1986, the NFIP has been 

financially self-supporting. During periods of high losses, the NFIP 

has borrowed from the U.S. Treasury, which is an essential part 

of NFIP’s financing for heavy loss years. These loans have been repaid with interest from policy-holder premiums and related fees at 

no cost to the Nation’s taxpayer. 

Hurricane Katrina was a catastrophic event, going well beyond 

what the NFIP was intended to address from premium revenues 

alone. In that context, let me refer to the charts that have been 

provided to subcommittee staff and, hopefully, are available to you. 

I direct your attention first to the chart that is about National 

Flood Insurance Program Estimate of Ultimate Paid Losses from 

Hurricane Katrina. There is a similar report——

Mr. PEARCE. Which panel—which sheet is that, CRS37? 

29

Mr. MAURSTAD. I believe I provided these charts to staff, along 

with the oral testimony, sir. And we have copies if you need copies. 

Do you need copies? There should be three documents——

Mr. PEARCE. Yes, you can go ahead. Thank you. 

Mr. MAURSTAD. Okay, thank you. Two of them are identical in 

format, one dealing with losses from Hurricane Katrina, and the 

other from Rita. I’m not going to go through this chart line by line. 

I just point out to you that this is the basis by which we have developed what we believe that the ultimate paid losses from the hurricanes will be, broken down by State and by affected counties. 

What we have provided in that is the total policy in force in a 

particular county, the total coverage associated with those policies 

and then as you move across to the right, what we estimate the 

assumed frequency for the number of losses on that total policy 

count, which leads us to the next column, which is the estimated 

number of claims that we are looking at for that particular county. 

The next column, we estimate what we believe to be the severity 

of the individual losses, with the final column being, of course, the 

total of the estimated number of claims times the assumed severity. 

If you go down to Louisiana, we also break that severity down 

to a little bit finer level in the assumption of the percentage of 

claims that would be paid at policy limits, those that would have 

a $40,000 severity, and the remaining at $50,000 severity. 

So we have used this as the guide, in addition to the information 

that has been generated from our requests from the 96 write-yourown companies. But primarily in this area there are about seven 

major insurance companies that administer the National Flood Insurance Program on behalf of the Federal Government in our what 

was biweekly calls and now weekly calls and the reporting that we 

have set up for them to tell us the number of claims that they are 

getting reported. 

And as time goes on, when those claims are being closed, and the 

amount that they’re being closed, so that we can keep as close an 

accounting, real time, as much as possible, given the circumstances, so that we know what to present to you as to the condition of the fund is. 

The third sheet that we provided is the projection of the Federal 

cash flow from the claim payments, and which is guiding us to—

it is the basis by which we requested the additional $2 billion of 

borrowing authority and now are requesting an additional $5 billion of borrowing authority. 

And you can see that our expectation is, on a weekly basis, that 

by mid to late November, our current borrowing authority will not 

be sufficient to take care of the claims that were expected to be 

closed and payments made to policy holders during the period between now and then, and then we carry that on out to the ultimate 

of $23 billion being the expectation for this event. 

I indicated in my written testimony how that compares with historical, and it clearly is many, many, many times beyond what the 

program has ever experienced in the 38-year history. 

Let me conclude my comments and then be certainly available 

for questions, either about the reports or my testimony. The $23 

billion in estimated claims from those whose homes and businesses 

30

have been damaged or destroyed by Hurricanes Katrina and Rita 

is not a new obligation. It is the result of a legal promise we made 

to these homeowners and business owners when Congress passed 

the National Flood Insurance Act of 1968 and the subsequent revisions. 

Homeowners and business owners agreed to pay the premiums; 

communities agreed to adopt building codes to mitigate flood damages; and the Federal Government agreed to provide insurance coverage to policy holders after a disaster. 

Every single one of these claims represents someone who has 

taken the responsible course of action by purchasing flood insurance and faithfully paying the premiums. We not only have a legal 

obligation to honor our commitments, we have a moral obligation 

to provide the coverage we promised to provide. 

To do anything less would not only result in dire consequences 

for the NFIP, the write-your-own insurance companies whose 

names are on the policies, and the communities working hard to 

manage their flood risks, it would simply be wrong. 

Once again, thank you for the opportunity to testify. And certainly, as in the past, I’m available to the committee. 

[The prepared statement of David I. Maurstad can be found on 

page 132 in the appendix.] 

Mr. PEARCE. Thank you. Mr. Jenkins? 

STATEMENT OF WILLIAM O. JENKINS, JR., DIRECTOR OF 

HOMELAND SECURITY AND JUSTICE, U.S. GOVERNMENT ACCOUNTING OFFICE 

Mr. JENKINS. Congressman Pearce and members of the subcommittee, I appreciate the opportunity to be here today to discuss 

the challenges facing the National Flood Insurance Program. 

The devastating effects of Hurricanes Katrina and Rita have 

placed unprecedented demands on the NFIP. As of October 13th, 

FEMA reported that 192,809 claims had been filed, and NFIP had 

paid almost $1.3 billion to settle 7,664 of these claims. This number 

of claims is more than twice as many as were filed in all of 2004, 

itself a record year. 

The NFIP combines property insurance for flood victims, maps to 

identify the areas at greatest risk of flooding, and incentives for 

participating communities to take actions that reduce future flood 

damage. 

A key characteristic of the NFIP is the extent to which FEMA 

must rely on others to achieve the program’s goals. FEMA’s role 

primarily is to one, establish policies and standards that others 

generally implement on a day-to-day basis, and two, provide financial and management oversight of those who carry out those dayto-day responsibilities. 

My statement today focuses on FEMA’s management and oversight of the sales and service of flood insurance policies. FEMA 

faces a challenge in providing effective oversight of the 96 insurance companies and thousands of sales agents and claims adjusters 

who are primarily responsible for the day-to-day process of selling 

and servicing flood insurance policies, including claims adjustment. 

About 40 FEMA employees, assisted by about 170 program contractor employees, are responsible for managing the NFIP. ManVerDate 0ct 09 2002 19:39 Jan 10, 2006 Jkt 000000 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 G:\DOCS\109.60 RODNEY
31

agement responsibilities include establishing and updating NFIP 

regulations, administering the National Flood Insurance Fund, 

analyzing data to actuarially determine flood insurance rates and 

premiums, and offering training to insurance agents and adjusters. 

In addition, FEMA and its program contractor are responsible for 

monitoring and overseeing the performance of the write-your-own 

companies to assure that the NFIP is administered properly. For 

example, assuring that policies are properly priced, and claims appropriately handled. 

FEMA told us that its principal method of monitoring performance and identifying and resolving problems is to conduct an operational review about once every 3 years, of each of the 95 writeyour-own companies. In addition, FEMA’s program contractor is to 

check the accuracy of claim settlements, do quality assurance reinspections of a sample of claims adjustments for every flood event. 

We examined 15 operational reviews completed from 2001 to 

February of 2005. We found that these 15 operational reviews met 

both FEMA’s standards for identifying critical errors, such as violation of policy or an incorrect payment, and that FEMA tracked a 

company’s progress in correcting any identified critical errors. 

We also found that FEMA’s method of selecting the sample of 

claims for reinspection was useful for identifying some specific 

problems and risks. But the sample was not representative of all 

claims settled and, thus, could not be used to assess the overall 

performance of private insurance companies and adjusters who 

process claims in a specific flood event. 

An instructor for adjuster training cited several problems he had 

identified in reinspecting claims, such as one, improper room measurements, two, improper allocation of costs caused by wind damage, and three, poor communication with homeowners in the process followed to inspect the property and settle the claim. 

Additional payments were made for about half of the 2,294 

claims that used the appeals process set up for Isabel claims, principally, for two reasons: the adjuster did not include some items he 

should, and higher payments for materials, labor, or personal property than originally allowed were allowed on appeal. 

FEMA has made progress, but not fully implemented the requirements of the 2004 Flood Insurance Reform Act. For example, in 

September, FEMA posted on its website its flood insurance claims 

handbook, which outlined a basic four-step process for appeals, but 

has not yet completed the design and implementation of its full appeals process. 

We recommended that FEMA develop plans that include milestones for completing requirements of the 2004 Act and assigning 

accountability for meeting those milestones. 

FEMA faces a formidable challenge in providing effective direction and oversight for processing the record number of flood insurance claims that have arisen and will arise from the recent hurricanes. This record number of claims only reinforces the importance 

of effective oversight and the need for clearly defined, understandable, and consistently applied processes for policy holders on filing 

claims and appealing claims settlements. 

32

It also highlights the need for effective communication with the 

thousands of anxious policy holders, many of whom have been displaced from their homes and many who have lost everything. 

As part of the body of work GAO is beginning on the preparation 

for a response to and recovery from Hurricanes Katrina and Rita, 

our work on the NFIP will continue. That concludes my statement, 

Mr. Chairman. I will be pleased to respond to any questions you 

or the other members of the committee may have. 

[The prepared statement of William O. Jenkins, Jr. can be found 

on page 55 in the appendix.] 

Mr. PEARCE. Thank you. I would yield to myself to start the 

questions. 

And Mr. Maurstad, I guess if I’m looking backwards, it looks like maybe in 2004 we were about $60 million—we had $60 million in 

the bank right? And then we had the losses of $2.28 billion in 2004, 

so we ended up borrowing $220 million. And you said that money 

has entirely been paid back? 

Mr. MAURSTAD. We originally had borrowed $300 million earlier this year. We paid back $75 million. And so the statement that we 

had paid for 1986 now is up to that point in time. 

Mr. PEARCE. I understand. But you have—you make—you take 

loans out and you make repayments. So I am looking at a revenue 

picture of $2 billion a year. Is that about what the Agency gets in 

in premiums? 

Mr. MAURSTAD. In premiums and in fees from the policy holders. 

Mr. PEARCE. About $2 billion in revenues? 

Mr. MAURSTAD. Yes. 

Mr. PEARCE. Now if I were going to go to a bank and borrow $22 billion with $2 billion worth of revenue, 22 versus 2, I would have 

to have it amortized over a long number of years. How many years 

is it going to take to pay back just Katrina? 

Mr. MAURSTAD. We——

Mr. PEARCE. Just the $22 billion or $23 billion that you are estimating. 

Mr. MAURSTAD. It is my opinion that the program does not have 

the ability to repay the portion of the—of what we are looking at 

here, beyond about $1 billion, unless we extend it——

Mr. PEARCE. Okay. So we don’t have the ability to repay. 

Mr. MAURSTAD. Not——

Mr. PEARCE. And in another part of your testimony, you said 

that we have made a legal promise. Why are we making legal 

promises that we don’t have the capability to fulfill? That becomes 

a critical question in the administration of the program. 

Mr. MAURSTAD. When the program was designed, back in 1968, 

and since then, it was designed from the premise that premiums 

would be generated that would be able to take care of the—an average loss year, and that borrowing authority would be extended to 

move—enable the program to move from year to year in those ups 

and downs that are going to occur from an average loss year. 

Mr. PEARCE. Basically, you are saying we miscalculated. 

Mr. MAURSTAD. No, I’m saying that without—it’s my opinion that 

the idea that if a catastrophic event ever occurred such as we’re 

facing now, that the Federal treasury would be the means by which 

that difference would be made up, that the program was not capVerDate 0ct 09 2002 19:39 Jan 10, 2006 Jkt 000000 PO 00000 Frm 00038 Fmt 6633 Sfmt 6633 G:\DOCS\109.60 RODNEY
33

italized, that the previous looks at whether or not reinsurance 

made more sense turned out to be more costly than if we continued 

to work the program based on average loss years with the necessary borrowing authority to get through the ups and downs. 

Mr. PEARCE. What—you said that all the check marks—in other 

words, the responsibility is on the part of others. Your comments 

were we made a legal promise to pay, but that people have a responsibility to buy; the communities had a responsibility to develop 

building codes. 

And are you telling me that if I am to look at your other sheet 

showing 235,000 estimated claims, 235,944 estimated claims that 

the building codes for all of those have been adequately—the check 

marks have been adequately made and that we have done our due 

diligence through all parts of society in order for us to say that we 

have the moral obligation to pay, which is your ultimate conclusion? 

Mr. MAURSTAD. It is the responsibility of the program to make 

sure that the communities——

Mr. PEARCE. And have they done that? 

Mr. MAURSTAD.—the——

Mr. PEARCE. And have they done—you said building codes was 

an important parameter. 

Mr. MAURSTAD. Yes. 

Mr. PEARCE. And have all the building codes been put in place 

and complied with? 

Mr. MAURSTAD. Yes. 

Mr. PEARCE. Could I get documentation to that effect, that you 

would, in your words, say that all building codes have been put in 

place, and they have been 100 percent complied with? 

Mr. MAURSTAD. When they are—when non-compliance is discovered, either by our inspections and community visits that occur, or 

if we are made aware of those violations, then we address them 

and require the communities to rectify the problem, or we go 

through the process of suspending them from the——

Mr. PEARCE. Mr. Jenkins, in your testimony you have indicated 

some oversight of—or some looking at introspection of the program. 

Would in your estimation we have complied with 100 percent of the 

building codes in the requirements for communities to do their due 

diligence in these 235,000 claims that are going to be filed? 

Mr. JENKINS. Well, I think there is one thing that is in Mr. 

Maurstad’s statement that is not a fault of FEMA, but there is a 

significant number of repetitive loss properties that by definition 

don’t necessarily meet those regulations because they were essentially grandfathered into the program. And there are roughly 

22,000 of those in Louisiana, for example, for which there would be 

claims. 

So, in particular, for the repetitive loss properties—these are 

properties that were built before the flood maps were created, and 

when they were built it wasn’t known that they were necessarily 

in a flood plain. 

So to the extent that there are these properties in the program—

and they are about 24 percent of all the properties that are in the 

program are in this category—then they don’t necessarily meet the 

building codes. 

34

Mr. PEARCE. Thank you. I appreciate that. Ms. Waters, I yield 

to you. I will have additional questions, so if you would like to have 

two sets of questions ready, we will go at least a second round. 

Ms. WATERS. Thank you. Thank you very much. I appreciate 

that. 

Mr. Maurstad, there have been, as you know, a lot of criticism 

and many complaints about the program. I think when you were 

here before, we requested information from you about interrogatories and document requests that Steve Kanstoroom—several 

committee members in July. 

You answered to the question—you said you had responded, or 

you were in the process of responding to every request that came 

to your office. I have not received anything. Have you sent me anything? 

Mr. MAURSTAD. Ms. Waters, I regret to let you know that we 

have not responded to those questions for the record. They are in 

the concurrence process now, and I am working with my cohorts in 

the office of general counsel in getting those answers for your questions, and getting them to you and the committee. 

Ms. WATERS. How long do you think it will be before we get those 

answers? What’s the time frame? 

Mr. MAURSTAD. Very soon. 

Ms. WATERS. This year? 

Mr. MAURSTAD. Yes, ma’am. 

Ms. WATERS. Next month? This month? Next month? 

Mr. MAURSTAD. Hopefully. I will work——

Ms. WATERS. Before December? 

Mr. MAURSTAD. Yes, ma’am. 

Ms. WATERS. Some time in November. Okay, we will look forward to that. 

Mr. MAURSTAD. I will do my best. 

Ms. WATERS. All right. There are some questions about the competency of some of the people that work for the Agency. And there 

is some information that I received about an adjuster training session, all these problems about—questions about the adjusters. 

A training session that took place in Mississippi shortly after 

Katrina, and according to a Mr. Jackson, many of the prospective 

adjusters had never adjusted a claim of any type, and that the CSC 

trainer provided the test answers to more than 500 adjusters, and 

he believed that these untrained adjusters were being used, unleashed on unsuspecting Katrina and Rita victims. How do you respond to that? 

Mr. MAURSTAD. I am not aware of that. We will certainly check 

into that. I would say to you that if there are independent adjusters, they have to be certified with the program for 4 years. If—we 

certainly have a provision where if a less experienced adjuster is 

needed because of the sheer volume of claims that we’re looking at, 

that they have to work with one of our certified adjusters and, in 

essence, in a buddy system, so to speak, apprentice system. 

And so there aren’t any adjusters out there that have never 

worked flood insurance claims that have the authority to settle the 

claim. They would be working with one of the certified adjusters. 

Now the adjusters that work for the companies that we primarily 

write the policies—that write the policies on behalf of the program, 

35

95 percent of the policies are written by the write-your-own companies. They use their adjusters, and they train those adjusters, and 

they provide the assertion to us as a part of their arrangement 

with the program that those adjusters are trained. 

But your specifics about somebody providing answers to test 

questions, I will have to look into. That’s not my understanding. I 

don’t have a firsthand understanding of that. 

I did attend adjuster training sessions right after Katrina hit in 

Alabama and Mississippi and Louisiana, and I didn’t witness any 

of that. 

Ms. WATERS. What is the Jones Insurance Agency? 

Mr. MAURSTAD. The Jones Insurance Agency that I am familiar 

with is located back in Nebraska. It’s an independent insurance 

agency that operates in a few of the communities in Nebraska. I 

am sure there are a number of other Jones Insurance Agencies 

throughout the country. 

Ms. WATERS. Is there one that is doing business as Maurstad Insurance Services? 

Mr. MAURSTAD. That agency purchased the agency that I was a 

corporate officer of back in 2003, I believe. 

Ms. WATERS. Are you a principal, a beneficiary in any way, of the 

Jones Insurance Agency at this time? 

Mr. MAURSTAD. No. No, I am not. 

Ms. WATERS. When did you sever your relationship with them? 

Mr. MAURSTAD. I believe it was March 1, 2003. I can provide—

if that’s not correct, I will correct the record. 

Ms. WATERS. Okay. Would you say that for me, again? March? 

Mr. MAURSTAD. First of 2003. The agreement, I believe, was effective, actually, you know, January 1, 2003. 

Ms. WATERS. What was the period of overlap in your service, 

your job, and the overlap with your——

Mr. MAURSTAD. As acting Federal insurance administrator, none. 

Ms. WATERS. Give me the dates from the——

Mr. MAURSTAD. March 1, 2003. I was appointed acting Federal 

insurance administrator, I believe, June 25, 2004. 

Ms. WATERS. Do you have any interest or participation in any 

other insurance-related business or entity at this time? 

Mr. MAURSTAD. No, I do not. 

Ms. WATERS. Well, I have a lot of questions here that relate to 

conflict of interest, and I don’t want to just simply put you on the 

spot, because these are very serious questions. But you should be 

aware that there are a number of allegations and inquiries that are 

being made about past conflicts of interest, potential conflicts of interest, even to a point where you were licensed to serve as a 

broker. 

So what I am going to do is I am going to set up some time with 

you to talk this over with you first and go through these questions 

so that you will have an opportunity to tell me what you know 

about these issues. And then we will see what happens from——

Mr. MAURSTAD. Yes. And I have provided this information to the 

ethics officer of the department. I have filed all the necessary financial disclosures as required. 

Ms. WATERS. Okay. 

36

Mr. MAURSTAD. I would be pleased to be able to sit down with 

you as well. 

Ms. WATERS. Okay, thank you. We will do that. My time up? 

Mr. PEARCE. Yes. 

Ms. WATERS. Thank you very much. 

Mr. PEARCE. There will be a second round if the gentlelady would 

like to take that. 

Ms. WATERS. All right. 

Mr. PEARCE. I think my first question would be that, Mr. 

Maurstad, I understand that you said we could sustain about $1 

billion repayment, and the rest of it really should not be in the 

form of a loan. Is that more or less correct? 

Mr. MAURSTAD. Yes, sir. 

Mr. PEARCE. In your initial opening statement, you had talked 

about $1.5 billion to $3.5 billion has already been authorized, and 

another $5 billion would be authorized. Now, it was my understanding you were talking in terms of a loan at that point. 

Mr. MAURSTAD. Yes, sir. 

Mr. PEARCE. Why would we be—why would FEMA be requesting 

a loan when you don’t have capability to repay anything exceeding 

$1 billion. Is that—shouldn’t we just get the terminology out on the 

table right now? 

Mr. MAURSTAD. The reason that we are requesting the additional 

loan authority is so that we can work with the committee and work 

with others in developing a program to—recommendations to 

strengthen the program when that—the ultimate decision that 

you’re talking about would be made. 

Mr. PEARCE. And what recommendations to strengthen the program involve—I mean, just basically financially, what recommendations are you going to make? Are there going to be premium increases for the affected areas? What? 

Mr. MAURSTAD. Well, premium—there would not be premium increases for just the affected areas because the same rates are 

charged throughout the country based on the risk associated with 

a particular zone on the flood map. So more isn’t charged——

Mr. PEARCE. I understand. 

Mr. MAURSTAD. Okay. 

Mr. PEARCE. Just premium increases across the board, then? 

Mr. MAURSTAD. Certainly. We increased premiums last year. 

Mr. PEARCE. How much did premiums go up last——

Mr. MAURSTAD. Those policies that are at less then risk, about 

8 percent. The actuarial-rated policies that make up about 75 percent of the program, at about—my memory is between 2 and 3 percent. I can provide that, those specific increases, to you. 

Mr. PEARCE. What about the repetitive losses that Mr. Jenkins 

mentioned? You have got 22,000 repetitive losses. I was watching 

a guy on TV one night saying that he had rebuilt two or three 

times and collected every time. Do you have any idea that you’re 

going to begin to curtail those practices of paying repetitive losses? 

Mr. MAURSTAD. We were given authority in 1994 and started the 

flood mitigation assistance program that was targeted at repetitive 

loss properties that was funded from part of the fees that were generated from the policies. 

37

You know, last year we had about $20 million go towards that 

effort trying to address repetitive loss property——

Mr. PEARCE. How are we trying to address those? 

Mr. MAURSTAD. Excuse me? 

Mr. PEARCE. How are we trying to address them? 

Mr. MAURSTAD. We either relocate or elevate the structures 

above the base flood elevation are the two primary ways that that 

is done. 

And, of course, the—in the reauthorization in 2004 that included 

a provision to address severe repetitive loss properties—and, you 

know, we’re pleased that with the signing of the Department of 

Homeland Securities budget a couple of days ago—we will now 

have the ability to transfer funds from the National Flood Insurance Fund to support the beginning of the severe repetitive loss 

property, as directed by the authorization——

Mr. PEARCE. You’re not going to stop—you won’t cease paying 

claims on repetitive properties? You will actually buy them out and 

physically move them, is that correct? 

Mr. MAURSTAD. In the previous policy it was on a willing buyer/

willing seller basis that you provide a mitigation opportunity to a 

property owner and provide grant assistance to do that. We have 

two other programs——

Mr. PEARCE. Well, I think if we took a—did you take a look at 

some of the people? I mean, I suspect if I go back and explain to 

my constituents that we are paying—I think if we took a balance 

sheet of some of the people that we’re buying their properties, and 

the number of times they have received compensation for those 

properties, I suspect I would not have a good time explaining to 

people in my district. Our average income is about $21,000, $22,000 a year, and we are 

paying those repetitive losses to people, I suspect, with bank accounts larger than net worths of people in my district. I really 

question that whole process. 

You have got—you have 40 full-time employees, 170 contract employees. How many people is it going to take to administer Hurricane Katrina by itself? 

Mr. MAURSTAD. Well, one of the benefits of the way the program 

is structured—and again, that we rely on the 96 write-your-own 

companies to administer the program—is primarily their resources 

that are being used to handle the claims that are going to—that 

are outlined in the hand-outs that I provided you. 

And so, although this is certainly beyond what a normal event 

would be, right now we have set up processes by which companies 

would be able to streamline some of the claims handling for those 

losses that are going to clearly exceed policy limits. 

So we are working with the write-your-own industry to handle 

these claims as quickly and as fairly as possible. But the benefit, 

again, of the system—to get directly to your question—is we utilize 

the private insurance industry to deal with the magnitude of this 

event. 

Mr. PEARCE. And I realize my time has expired, but just to follow 

up, is that, the cost for that use of the private insurance industry 

to administer, is that calculated into the cost? 

Mr. MAURSTAD. Yes. Some of it is, sir, yes. 

38

Mr. PEARCE. Ms. Waters, do you have additional questions? 

Ms. WATERS. Well, you know, I am so concerned about all of 

these losses, and all of these citizens who will be placed in the position of trying to recover, trying to get insurance companies to pay, 

trying to get you to compensate them fairly. 

And we have had so many complaints, and people are in the understanding, often times, that they are to be made whole, that the 

adjusters, you know, are not doing the work in a way that respects 

and recognizes their tremendous losses. 

Now I am looking at this GAO report, and it said that FEMA has 

not yet fully implemented provisions of the Flood Insurance Reform 

Act 2004 requiring that the Agency provide policy holders with ‘‘a 

flood insurance claims handbook that meets statutory requirements 

to establish a regulatory appeals process,’’ on and on and on, and 

that the deadline was December 30, 2004. What’s with this? 

Mr. MAURSTAD. There are some aspects of the reauthorization 

that we are—have not fully completed to this point. But as my 

written testimony indicates, beginning back in September, we are, 

in fact, providing the claims handbook to policy holders. We are in 

the process of the companies providing the summary of coverage to 

the policy holders as those policies are now beginning to be reviewed—or renewed. 

So there are certain—the agent training component of the reauthorization, we have completed that, working as directed with the 

insurance commissioners across the country. So there are certain 

parts of the reauthorization that we have complied with and completed. There are other parts that we are in various stages of completing. We are working very aggressively at getting it all done. 

Ms. WATERS. That’s a real problem. 

Mr. MAURSTAD. And if I could——

Ms. WATERS. Let me just tell you—and I think you know this—

one of the greatest complaints that we are going to hear from the 

victims of Katrina and Rita is that they are not being treated fairly, that the adjusters are not treating them fairly. 

So we are going to hear a lot of this. And we just hope that you 

can do something that will demonstrate that you are bending over 

backwards to treat these people fairly. I mean, they have gone 

through an awful lot. 

Mr. MAURSTAD. Yes——

Ms. WATERS. Having said that, this handbook and information 

that helps to educate people and helps to help them to walk 

through these processes and these procedures is so very important. 

And that should not be underestimated. And I would like to see 

this fully implemented. 

Mr. MAURSTAD. Yes, ma’am. We agree with you. And we wanted—and part of the delay, quite frankly, was working with the 

write-your-own companies, working with the agent groups, to make 

sure that the tools that we develop have the effectiveness that 

you’re talking about. 

So we work with them and consult with them to make sure that 

we do that. We agree that the better information we can provide 

to policy holders, the more easily they are going to understand the 

process and be able to have their claims handled fairly. We 

have——

39

Ms. WATERS. Do you think we should set up a program for the 

payment of premiums that will protect beyond $250,000, if people 

are willing to pay a little more? 

Mr. MAURSTAD. We certainly—that figure has not been changed 

since 1994. We certainly need to look at——

Ms. WATERS. Have you recommended——

Mr. MAURSTAD. We would certainly need to look at, as we try to 

move forward on how we can strengthen the program, whether the 

fund can support that increase in limit of insurance. It certainly is 

on the table and certainly needs—and we are reviewing it. 

Ms. WATERS. So—but you have not made a recommendation to 

that effect anyplace? 

Mr. MAURSTAD. No, I have not. 

Ms. WATERS. But this would be with an increase in premiums for 

those who are willing to pay? 

Mr. MAURSTAD. There will certainly be——

Ms. WATERS. Can afford to pay? Who have properties that are in 

excess of $250,000? You think that’s a legitimate way to deal with 

coverage of some of these properties? 

Mr. MAURSTAD. I certainly think it’s legitimate and certainly 

think that it’s one of the things that we need to look at as we work 

together to try to strengthen the program if that, in fact, is——

Ms. WATERS. What’s taking you so long? You didn’t just start 

thinking about this today. 

Mr. MAURSTAD. No. Part of the reason—I started, actually thinking about it a year ago, after some of our conversations and after 

reviewing some of the complaints that had been registered before. 

But at that time, we were on the heels of the four hurricanes 

that we were affected by in 2004, causing the greatest number of 

claims in the history of the program, and the fund was in a borrowing position. And so to increase the limit of insurance at that 

point in time, it seemed to be prudent to wait and see as we continued to look at that. So it’s on the table. 

Another—what you’re getting at is another concern of mine in 

that we need to continue to educate people and make people aware 

of, and that’s insuring the value. Many times, when people do buy 

a flood insurance policy, they only buy it for a minimum amount. 

And then, when they have a devastating loss, they again don’t have 

the necessary insurance proceeds to help them rebuild. So we need 

to do a better job of getting the 4.7 million policy holders that we 

have now to insure to value, similar to what they do on their normal homeowner policy. 

Ms. WATERS. Well, what’s taking you so long to have gotten that 

job done? 

Mr. MAURSTAD. Well, we are working very aggressively. We have 

a public awareness campaign that we have shared with you before, 

floodsmart.gov. We have a national campaign we targeted to areas 

that have the greatest losses to try to make sure people understand 

their flood risk, encourage them to contact their local agent and 

buy a policy, provide the necessary information to them through 

our floodsmart.gov website——

Ms. WATERS. Okay, that’s good. What about mapping? What 

have you done about that? 

40

Mr. MAURSTAD. Mapping, we are working very aggressively, 

again, with our stakeholders. My programs all deal with working 

with States and local communities, associations like the Association of State Floodplain Managers, and we are working with them 

in implementing the flood map modernization. We are about—we 

are starting our, I think, fourth year of that 5-year program. We 

are on track. 

But it takes time to develop maps, from an engineering point of 

view, working with the corps, working with private engineers. But 

then also, it takes time once we deliver those maps on a preliminary basis to the communities for them to have the public hearings 

necessary and to formally adopt those maps. 

So the process is one that is 2 to 3 years in time. That’s the way 

it is designed to be for the necessary public protections. 

Ms. WATERS. Finally, do you support Mr. Taylor’s bill for dealing 

with those people who have no flood insurance? 

Mr. MAURSTAD. No. I do not. 

Ms. WATERS. Why not? 

Mr. MAURSTAD. Well, I think that it would provide a disincentive 

for people to purchase flood insurance. There is already a perception out there that one of the reasons why—I am told, when people 

are asked why they don’t have a flood insurance policy—is one, 

they think that—they erroneously believe that it is covered under 

their homeowner’s policy, but second, there is a perception that the 

Federal Government will come in at the time of a disaster, and——

Ms. WATERS. So what should happen to these people? 

Mr. MAURSTAD.—provide them assistance. And it does not——

Ms. WATERS. What should happen? 

Mr. MAURSTAD.—encourage people to do the right thing and 

buy——

Ms. WATERS. What should happen to these people who—this 

great disaster? 

Mr. MAURSTAD. I think that there are a number of efforts, not 

only within the Department, but within the Federal Government 

and within the private sector to try to develop the best way to meet 

those unmet needs. 

Ms. WATERS. No, we’re not talking about meet unmet needs; 

we’re talking about people who have lost everything they have, 

their home, everything they have. 

Mr. MAURSTAD. I have seen it. Yes, I have seen it. And maybe 

I didn’t phrase my answer very well. What I am getting at is that 

beyond this program that is designed to provide payment of insurance claims for people that had insurance policies, there are many 

other efforts underway to try to help those people——

Ms. WATERS. Such as? 

Mr. MAURSTAD. Well, the individual assistance programs in the 

disaster support——

Ms. WATERS. Such as? 

Mr. MAURSTAD. The Individual Assistance Program, rental assistance, that there is actually—part of that program is called 

‘‘Unmet Needs.’’ Temporary housing——

Ms. WATERS. Okay, see, it’s all——

Mr. PEARCE. The gentlelady’s time is expired. 

41

Ms. WATERS.—talk in generalities about other programs, et 

cetera, but let me just say this, Mr. Chairman, and I am finished. 

You have a lot of excuses, not only about mapping, about not 

making recommendations to the Congress of the United States 

about how to expand the program, excuses about why we have not 

done the education job you further exacerbate by telling me that 

people don’t understand their own homeowner policies and think 

that they are covered, and because they are stupid and they are ignorant, that they should have to suffer, you know, the consequences. 

Please, try and think about this differently. Try and think about 

what it means to a family to lose that home. I mean, that is the 

American dream. That is everything. And there may be—even 

though I have heard some discussion here today about how do we 

meet all of the needs and whether or not we are doing it for people 

with earthquake—there comes a time when the disaster is so catastrophic, it is so huge, that we need to do something special. 

And we have got to be particularly sensitive at a time like this. 

And I want you to think about how you can strengthen our ability 

to provide protection in ways that people really understand it. And 

in this case, with Katrina, Rita, et cetera, how we do something extraordinary. 

Thank you very much. And I appreciate that, Mr. Chairman. 

Mr. PEARCE. The gentlelady’s time has expired. The gentleman 

from Oregon, Mr. Blumenauer, is recognized. 

Mr. BLUMENAUER. Thank you. And I do appreciate the subcommittee’s courtesy in permitting me to join in this effort. I have 

been shuttling back from—with another committee I am on that’s 

looking, actually, at some of the same things. 

Mr. PEARCE. And the chair is about to have to do that, also. 

Mr. BLUMENAUER. I will be very brief. I would like to ask about 

the nature of the report on the value of mitigation that was required, I think, in the HUD appropriations bill of 2003. My understanding is that you contracted with somebody; the report is done; 

you have reviewed it; it has been forwarded off to Homeland Security someplace. Do you have a sense of when this report is going 

to be released? 

It seems to me that if there was ever a time when it would be 

useful for Congress to be able to understand the value of mitigation, it would be as we are looking at these sensitive issues. When 

can we get this report? 

Mr. MAURSTAD. Sir, I have seen a draft of the report. We have 

seen—but the actual report has not been formally transferred to 

the Department or to the mitigation division. 

It’s my understanding that that’s going to happen any day now. 

I agree with you on the timeliness of the findings of that report. 

And—but that is, as I understand it, the current status. 

We have worked with the multi-hazard mitigation council that—

the briefing that I received a number of months ago, as they were 

winding down the report, the scientists that they used on the report, I think it’s going to be a very valuable tool, and I also am 

anxiously waiting for that report to be provided to us. 

Mr. BLUMENAUER. Well, it would be helpful if we could pin this 

down and get a specific answer about where this is. I was told that 

42

it had been cleared by FEMA and had been sent off to the Department of Homeland——

Mr. MAURSTAD. Sir, we have seen a draft of it, and I am waiting 

for the multi-hazard mitigation council to provide me with the formal report. And it was my understanding last week that it was on 

its way. 

Mr. BLUMENAUER. Good to know. I am unclear about the 

progress on the implementation on the regulations for the Flood Insurance Reform Act. 

What are some of the critical issues that have been highlighted 

by your consultation of the States and communities, and when are 

we going to see that promulgated? 

Mr. MAURSTAD. What—I guess I am not sure what—are you talking about the agent training component that you asked us——

Mr. BLUMENAUER. The regulations that would be attended to the 

flood insurance reform. 

Mr. MAURSTAD. Are you talking about the severe repetitive loss 

pilot program? 

Mr. BLUMENAUER. There are regulations with that, and I thought 

there were some other regulations that had not yet been promulgated. 

Mr. MAURSTAD. Well, we just received the ability to transfer the 

funds from the National Flood Insurance Fund to provide the resources to start the severe repetitive loss program. 

We held that consultation meeting, actually, late last year, as required by the legislation, and are now in the—beginning with the 

authority that happened a couple of days ago, with beginning the 

rulemaking process. 

Mr. BLUMENAUER. And when do you think the rules will be finished? 

Mr. MAURSTAD. Well, I am hopeful——

Mr. BLUMENAUER. This is a conversation you and I had 6 months 

ago. 

Mr. MAURSTAD. Well, we didn’t have the authority six months 

ago to be able to begin the pilot program. We now have that authority. I am hopeful that if we get some of our—when we get some 

of our staff back from the field that are still helping the respond 

and recover to Katrina and Rita, that rulemaking process as we 

both know it, some time in the March/April time frame of next 

year. 

Mr. BLUMENAUER. I had submitted a series of questions after our 

April hearing and resubmitted them in writing in September. To 

the best of my knowledge, we haven’t yet—and I understand things 

have been going on——

Mr. MAURSTAD. That’s correct, and I—as I indicated to Ms. Waters, I made a commitment to her to work with the other parts of 

our department to get those answers back to you some time next 

month. 

Mr. BLUMENAUER. I would just conclude—one thing that would 

be useful to have, because we have been having conversations in 

the past—I appreciate your courtesy—but by the nature of the 

business that FEMA is involved with, there is always something 

going on. You would wish there wouldn’t be, but the reason you’re 

43

there is because we have emergencies. And we had four hurricanes 

last fall; we’ve got Katrina; we’ve got a whole range of things. 

I have been working with FEMA for the last 5 years to try and 

get resources to the Agency, new tools, money, and authorization 

so that it’s easier for you to do the job. And I have appreciated the 

professionalism with a whole host of folks who have given us back 

information as we have tried to craft legislative responses. 

What would be helpful would be to have a candid response from 

the Agency about what you need to be able to deliver what’s in the 

pipeline, what we have been trying to do. I don’t like being in a 

sort of a give-and-take situation because I have tried to be on your 

side for 5 years. And I see some of our old friends in the back of 

the room who have been there and have been constructive. 

But what would be very helpful for some of us who have been 

trying to be constructive partners with FEMA is to understand 

what it is that we can give you to clarify, to provide resources, and 

to move us forward. 

We are going to be spending—I think we’re spending $14 million 

an hour, last I calculated. I mean, it’s—after a while it’s real 

money. But number of things that we have talked with you about 

here, and that the committee is looking at, are not that expensive 

in the overall scheme of things. But they will make a huge difference on saving long-term costs, helping people get out of harm’s 

way, and helping us get ahead of the curve, rather than you folks 

scrambling to catch up. 

And so my specific request is to have some of your certified 

smart people who have been through this before and given what’s 

happened informed by your year or so in this‘‘ squirrel cage,’’ get 

some specifics so that we can go to bat with our authorizing committees and our appropriating committees, to make sure that whatever it is to clear up ambiguity or to provide resources happens, so 

we’re not in a situation like you’re telling me, that something we 

passed last year we’re going to talk about maybe promulgating regulations next year. 

I am interested in ways that we can get ahead of the curve, and 

I look forward to working with the committee and the committee’s 

staff on these recommendations so that we can—so we’re not going 

to rehash this. And I offer it from the perspective of somebody who 

has been trying to work with you folks for 5 years. 

Mr. MAURSTAD. Well, sir, we—as I have indicated before, we appreciate your support. My Member of Congress, of course, worked 

very closely with you—now retired Congressman Bereuter. I have 

had conversations with him. We appreciate your support. 

The rep loss pilot program, now that we have that authority, provides some assistance for staff in that area that we didn’t have the 

capability of before, but we will certainly look at your request and 

have that continued discussion with you. 

Mr. BLUMENAUER. Thank you. Mr. Chairman, thank you for your 

courtesy——

Mr. PEARCE. I thank the gentleman from Oregon. And I just have 

two last questions, and I appreciate your indulgence. You have 

been very gracious with your time, and you got caught in a vote, 

and the first hearing lasted somewhat longer. 

44

Mr. Jenkins, I am going to ask you last—but you’re going to be thinking about it based on your previous work—of the $22 billion 

or $23 billion in losses that are declared on this page, how much 

problem do you think—how many dollars problems would you 

think would be involved in there based on the lack of oversight and 

people overestimating? So that will be the wrap-up question. 

Mr. Maurstad, you indicated legitimacy to upping the ceiling, the cap. If we change from $250,000, say, to $500,000—that’s a nice, 

round number; it’s twice. If that were the case, how much would 

your columns change by here, and how much would you have 

changed in Katrina? 

And then I suspect if you talked about raising the caps—which 

you said the Agency has talked about—you have gone back and 

plugged in to the losses for 2004, that was $2.28 billion—how much 

would those losses have gone up through the increased caps, and 

how much more exposure do we have here? If you can give 

those——

Mr. MAURSTAD. Well, I would try—your—an answer to your 

question would require a number of assumptions based on how 

many people that currently have the maximum amount of insurance, $250,000, would pay the additional premium to go to a higher 

level. That would be the first assumption that comes to my head 

that would have to be made. 

But most importantly, what we would do is we would go back 

and actuarially determine what the additional premium amounts 

would need to be, given the higher limit of insurance that we would 

be making a commitment to paying for, if there were a loss, and 

determining what those appropriate premium levels should be. 

And then, you would—we would have to determine—and it would 

be most accurate after the fact—how many people decided to increase their limit of insurance, pay that additional premium that 

would then provide the additional resources to pay claims. 

Mr. PEARCE. Am I to understand, then, that you have not put in 

any projections? As a business owner, I would tell you how I would 

approach it. I would approach it to the maximum risk. That is, the 

maximum number people take it as possible, and we suffer the 

maximum number of losses. That is, this loss sheet extended to the 

maximum. And then you would project the increase of premiums. 

And am I to understand that even though you are suggesting 

that we want to go up on the caps, you haven’t figured out what 

it’s going to actually cost the taxpayer in New Mexico? 

Mr. MAURSTAD. Well, again sir, as also a former small business 

owner, I would look at things in a certain fashion. And I know, 

from my experience, that the actuaries are going to look at it in 

a whole other fashion to make sure that what’s being done is 

done——

Mr. PEARCE. I understand that. We’re just talking about a business model. 

Mr. MAURSTAD. But——

Mr. PEARCE. If I’m going to come to the Congress and suggest 

that we up the caps, I think I would be prepared to say, ‘‘If we did 

that and if everybody had upped their premiums and upped their 

purchases, the losses, instead of $22 billion, would be $33 billion,’’ 

or something. I just think that’s a fair question for us to ask, and 

45

a business-like question to ask, so that we know the stakes of going 

up on our premiums. 

And, likewise, because this is an extraordinarily high loss year, 

it would be very, very pragmatic to scoot back to 2004, which was 

the period of greatest loss, but at 1/10th the level and say, you 

know, ‘‘We are not going to always get these big years, but even 

in this bad year, this 1/10th year, here is what we would have expected.’’

Mr. MAURSTAD. That modeling would go on. And again, we would 

base it as—absent any other substantive program changes—based 

on an average loss year, as to the ability to generate the necessary 

premium from the policy holders to pay the claims that come in 

during that year. 

Mr. PEARCE. I understand that. My point is that you said that 

you saw certain legitimacy to the idea, that you all had talked 

about it internally. And to talk about it internally without measuring the possible consequences, to me, is upside down, that as we 

are talking about the legitimacy, we should be talking about the 

consequences. 

Mr. Jenkins, would you like to wrap up? We really do need to 

finish this. 

Mr. JENKINS. You asked about the potential extra cost. 

Mr. PEARCE. Yes. 

Mr. JENKINS. I would say that, basically, if you take the Isabel 

model and assume that it, with some adjustment, sort of applies to 

this, you had roughly 10 percent of people who had an opportunity 

to appeal their claim did appeal their claim. And then, of those people, half got more money, and they got about 10 percent more than 

their average claim for various reasons. 

So you could say, based on that model, that whatever this estimate is, it’s probably not unreasonable to assume it’s about 10 percent higher. Particularly if you have an appeals process. 

The thing that—the mitigating factor in that compared to Isabel 

is that a lot of these people whose homes have been completely 

wiped out are going to get the maximum that their policy pays, so 

you’re not going to have some of the issues, in terms of what the 

repair costs are, and the schedule of costs that ought to be used, 

and that kind of thing, because it’s not an issue for those particular 

claims. 

Mr. PEARCE. Using your knowledge of the system, did you have 

a chance to review the charts——

Mr. JENKINS. No, we have not seen those. 

Mr. PEARCE. Just going to assume severity and the bulk of the 

losses are going to occur in Jefferson Parish, where there is a loss 

of $75,000 per unit projected, and 73,000 homes, a loss in Orleans 

Parish, of 100,000. 

Using your estimates, would those severity calculations be fairly 

accurate, or is it just too far out of your realm to guess? 

Mr. JENKINS. Just—we would really have to look at it. I 

mean——

Mr. PEARCE. Okay, all right. 

Mr. JENKINS. Just let me give you additional information. 

Mr. PEARCE. Yes. 

46

Mr. JENKINS. We have some data, this October 13th data that we 

got, and we know it has to have an error in it. The average claim 

that that data shows for Louisiana is $663,000. That’s pretty unlikely that that’s the actual average amount being paid. 

Mr. PEARCE. Right. Thank you both, and again, Mr. Maurstad, 

these are very difficult days, very difficult times, and the questions 

that we have to wrestle with are tremendous. But the ones that 

you have to see firsthand are even worse. So I thank you for your 

service and thank your Agency. 

The chair notes that some members may have additional questions for this panel, which they may wish to submit in writing. 

Without objection, this hearing record will remain open for 30 days 

for members to submit written questions to these witnesses and to 

place the responses in the record. 

[No response.] 

Mr. PEARCE. Hearing none, this hearing is adjourned. 

[Whereupon, at 1:15 p.m., the subcommittee was adjourned.] 

(47)

A P P E N D I X

October 20, 2005

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